HC Deb 14 November 1973 vol 864 cc599-607

8.25 p.m.

The Minister of State, Treasury (Mr. John Nott)

I beg to move, That an humble Address be presented to Her Majesty, praying that the Double Taxation Relief (Taxes on Income) (Belize) Order 1973, be made in the form of the draft laid before this House on 16th October, in the last Session of Parliament. I think it would be for the convenience of the House, Mr. Deputy Speaker, if we were to take at the same time the orders dealing with Brunei, Sweden and Barbados.

I should open my remarks, perhaps, by saying that of the four double taxation orders before the House this evening, three, those relating to Barbados, Brunei and Sweden, amend existing agreements simply to take account of the change in our system of company taxation. The order relating to Belize also includes a provision granting double taxation relief for tax which would have been payable in Belize but for relief given under certain provisions of Belize law in order to encourage development.

It might be convenient, therefore, if I dealt first with the provisions in all four orders relating to dividends. The treatment proposed for dividends flowing from the United Kingdom is basically the same in each case. It follows that provided in the double taxation agreement with Denmark, which came before the Standing Committee on Statutory Instruments in June.

The hon. Member for Dudley (Dr. Gilbert) will remember that we debated the United Kingdom-Denmark order at some length in the Standing Committee. We have debated similar orders for Cyprus, France, Finland, Jamaica and Malaysia, and these also were approved by the Standing Committee in July. The same points of principle arise on the present orders as arose on those to which I have just referred.

Under the new dividend articles, the tax credit in respect of dividends paid by a United Kingdom company will be given to portfolio investors in these countries—in other words, to all individuals resident there and all companies resident there which control less than 10 per cent. of the voting power in the United Kingdom company paying the dividend. Where the tax credit is given, the United Kingdom tax will be limited to 15 per cent. of the aggregate of the dividend plus the tax credit.

The provisions in the dividend articles in respect of dividends flowing to the United Kingdom reflect the differences in the tax systems of the four countries. The dividend articles in the case of Barbados, Belize and Brunei, which have broadly the same systems as the United Kingdom had before 1965, exempt the dividends from any tax other than that paid by the company on its profits. This is in line with what was done in the past.

Under the terms of the protocol with Sweden, however, the withholding tax levied on portfolio dividends flowing to the United Kingdom will be 10 per cent. instead of the 15 per cent. currently allowed by the agreement. The rate levied on direct dividends will remain at 5 per cent., but the qualifying shareholding will be reduced from 25 per cent. to 10 per cent.

I refer now to the remaining provisions of the Belize agreement, which gives matching credit in the United Kingdom for tax spared under certain provisions of Belize law. Relief of this nature is a feature of a number of our existing double taxation agreements, and we are here, in the double taxation order relating to Belize, merely following a pattern which has been established for some time.

We regard these four agreements as fair and properly balanced, and I commend them to the House, but I think that I should now say a few words to answer in advance a few of the questions which may naturally arise in the mind of the hon. Member for Dudley.

In the past, there has been considerable debate on the question of the retrospection of these double taxation agreements. We should like to see as many agreements as possible take effect from 6th April 1973, the date on which the new corporation tax system started to apply to dividends. Where negotiations are already in progress, we are offering to make the new agreements retrospective to 6th April, and we are prepared to make the same offer in future so long as there seems to be a reasonable chance that an agreement will be ratified before the end of the current income tax year; that is, before 6th April 1974.

In other cases we shall have to consider the extent to which we should be prepared to allow retrospection. I mention that because I know that the right hon. Member for Manchester, Cheetham (Mr. Harold Lever) was concerned about this aspect of double taxation agreements when he was Financial Secretary to the Treasury.

It may help the House if I now outline the progress which we have made so far in negotiations with other partner countries over the revision of the dividend article. This article, as the hon. Gentleman recognises, has to be changed as a result of our going over to an imputation system of corporation tax. Revised dividend articles are now in force with Cyprus, Denmark, France and the Republic of Ireland, and revised dividend articles with Finland, Jamaica and Malaysia are only awaiting ratification in those countries. The United Kingdom has already completed its procedures in each of these cases.

Negotiations are at present in train with other partner countries which have responded to our invitation to discuss the revision of the dividend articles in our conventions.

Now, a word about the provisions relating to Belize and the whole question of pioneer relief. I think that the House may wish to know what is the estimate of cost to the United Kingdom of granting pioneer relief provisions in our double taxation agreements. It is not possible to give an exact estimate of the cost to the United Kingdom of the matching credit provisions which have been agreed with Belize.

It would be short-sighted to seek to judge agreements of this kind, which include relief for pioneer arrangements in developing countries, purely in terms of what they might cost the United Kingdom. There are intangible advantages in the kind of arrangements we are seeking to agree with Belize, particularly in assisting international trade and helping with aid. I believe that such a provision is generally agreed by businessmen, and it has always been welcomed by the House.

There are a number of other matters on which I shall be happy to help the hon. Member for Dudley. He may have one or two points to raise, and so I shall give him an opportunity now to put questions to me.

8.35 p.m.

Dr. John Gilbert (Dudley)

I am grateful to the Minister for the customary lucidity of his exposition. He has already answered some of the points I had intended to raise.

The first question in my mind, one that may well be in the minds of other hon. Members, is why the House is discussing these matters. I realise that it is not the hon. Gentleman's responsibility, but it seems a pity that we could not have delayed the introduction of the orders until the Standing Committee was set up, and therefore not have had to take up the time of the House discussing these relatively minor matters.

I am grateful to the hon. Gentleman for giving an indication of the progress of negotiations with other partner countries with which we have double taxation agreements. He stimulated my curiosity, perhaps a little unwisely, by implying that certain of our partner countries have not yet responded to suggestions from the Government that the dividend clauses in existing agreements be renegotiated. How many of our partner countries have failed to respond? When does the hon. Gentleman expect a response to be forthcoming? I take it that the Government do not propose to let the matter rest there. Can the hon. Gentleman outline some of the consequences of the provisions of the double taxation agreements not being renegotiated to take account of our new form of corporation tax, if no response is forthcoming in the near future?

I was intrigued by a variation of wording in certain sub-paragraphs of the agreements, which one would have thought had been intended to stand on all fours one with another. I refer in particular to the first sentence of paragraph 1(4) of the schedules. In the schedule relating to Brunei paragraph 1(4) reads: Dividends paid by a company resident in Brunei to a resident of the United Kingdom may be taxed in the United Kingdom. The first sentence of the similar subparagraph relating to Sweden reads: Dividends paid by a company which is a resident of Sweden and which are beneficially owned by a resident of the United Kingdom may be taxed in the United Kingdom. There is a similar discrepancy in wording in the Barbados agreement, which says: Dividends paid by a company which is a resident of Barbados to a resident of the United Kingdom who is subject to tax in the United Kingdom. … Neither that paragraph nor, as far as I can recall, sub-paragraph (4) of the Belize agreement includes the phrase found in the Brunei and Sweden agreements to the effect that dividends of that sort may be taxed in the United Kingdom. No doubt the omission is harmless, but I shall be grateful if the hon. Gentleman can satisfy my curiosity.

I have a further point with respect to sub-paragraph (7) of the Swedish agreement and sub-paragraph (5) of the Brunei agreement, where there are some extensions of the term "dividends". The schedule to the Swedish order says in the new Article VII(7): The term 'dividends' as used in this Article means income from shares, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights assimilated to income from shares by the taxation law of the territory of which the company making the distribution is a resident …". This next phrase does not appear in the other agreements: … and, in the case of the United Kingdom, includes any item (other than interest exempt from United Kingdom tax under Article VIII of this Convention) which under the law of the United Kingdom is treated as a distribution of a company. These are probably minor discrepancies, but they attracted my attention when I read the four orders, and I should be grateful if the Minister of State would enlighten us as to any significance they may have.

Mr. Nott

By leave of the House, I will reply to the points raised by the hon. Member for Dudley (Dr. Gilbert).

I, too, would have welcomed it if the debate had taken place in the merits Committee upstairs. We are reverting temporarily to the traditional manner of considering double taxation agreements. I agree with the hon. Gentleman that it is rather more pleasant to consider a double taxation agreement at 10.30 in the morning than it is at 8.45 in the evening. As the hon. Gentleman knows, the House is considering these orders tonight because the merits Committee has not yet been set up for the current Session.

We are making progress with all the other double taxation agreements. We are in touch with all our partners. There is obviously a variation in the speed with which many countries with which we have agreements wish to move. Normally it is not of any great disadvantage not to renegotiate the dividend article. It depends very much on the taxation system of the other country. We are proceeding as best we can with what can be fairly detailed negotiations with a large number of other countries. I think that the hon. Gentleman will agree that we have made substantial progress up to now. I hope that we shall be able to bring more of these orders before the House in due course.

The hon. Gentleman pointed to discrepancies in the wording as between the four orders. Although I will carefully study what the hon. Gentleman said and write to him giving the detail on any point I am not able to answer immediately now, I think I can say to him now that all these negotiations are bilateral and it is only to be expected that the wording will be rather different and will not be precisely the same in every case. I do not think that there is any difference in substance between "beneficially owned" and "owned".

Mr. Ted Leadbitter (The Hartlepools)

It is all very well for the Minister of State to say that he regrets that these orders are being dealt with here rather than in the merits Committee. Bilateral agreements are being implemented in the form of double taxation relief orders. The House is asked to approve these orders at a time when only two hon. Members are taking part—the Minister of State and my hon. Friend the Member for Dudley (Dr. Gilbert). This does not constitute examination by the House of Commons. The Minister should inform his Department that this is not the way in which these orders should be dealt with. Nothing will go wrong on this occasion, because a promise has been given.

Mr. Nott

With respect, this is more a matter for the House than for my Department, but, so far as I am aware, double taxation orders were taken in the House over many years in the manner in which we are now taking them. In a way, we are now reverting to the traditional way of dealing with double taxation orders. Although I much prefer to take them in the morning in the merits Committee upstairs, the hon. Member for the Hartlepools (Mr. Leadbitter) was present on one occasion and will admit that there were rather fewer people in the merits Committee than there are in the House tonight. We may have a minor disagreement on the numbers present, but certainly I have taken note of his view.

Dr. Gilbert

To reinforce the point of my hon. Friend the Member for the Hartlepools (Mr. Leadbitter), although it is not for me to put words into his mouth, he might be gratified if the hon. Gentleman could give us an assurance that we shall not have any more of these orders brought forward until the Committee is set up.

Mr. Nott

I cannot give that assurance, because it is a matter for the House when the merits Committee is set up in each Session. Much as I should like to help the hon. Gentleman, there may be circumstances in which the House is unable or unwilling to set up the merits Committee at the beginning of a Session, and in which we literally have to move ahead and deal with orders and get them out of the way as a matter of executive and administrative necessity. So, although I am quite happy to take these orders in the merits Committee, and prefer that course, I could not give that undertaking. But, to revert to what I was saying before I was interrupted, I will look into the technical points which the hon. Gentleman made and will get in touch with him if I have not already fully answered the points which concern him.

Question put and agreed to.

Resolved, That an humble Address be presented to Her Majesty, praying that the Double Taxation Relief (Taxes on Income) (Belize) Order 1973, be made in the form of the draft laid before this House on 16th October, in the last Session of Parliament.—[Mr. Nott.]

Resolved, That an humble Address be presented to Her Majesty, praying that the Double Taxation Relief (Taxes on Income) (Brunei) Order 1973, be made in the form of the draft laid before this House on 16th October, in the last Session of Parliament.—[Mr. Nott]

Resolved, That an humble Address be presented to Her Majesty praying that, on the ratification by the Government of the Kingdom of Sweden of the Further Supplementary Protocol set out in the Schedule to the Order entitled the Double Taxation Relief (Taxes on Income) (Sweden) Order 1973, a draft of which was laid before this House on 16th October, in the last Session of Parliament, an Order may be made in the form of that draft.—[Mr. Nott.]

Resolved, That an humble Address be presented to Her Majesty, praying that the Double Taxation Relief (Taxes on Income) (Barbados) Order 1973, be made in the form of the draft laid before this House on 2nd November.—[Mr. Nott.]

Addresses to be presented by Privy Councillors or Members of Her Majesty's Household.

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