HL Deb 07 December 1955 vol 194 cc1190-6

3.20 p.m.

THE EARL OF SELKIRK rose to move that the Draft International Finance Corporation Order, 1955, reported from the Special Orders Committee on November 23 last, be approved. The noble Earl said: My Lords, this Order is made under the International Finance Corporation Act, 1955, and in particular under Section 3 (1) of that Act. The Articles of Agreement were before Parliament when this Act was approved. This Corporation has a standing entirely of its own; it is an affiliate of the International Bank, which I think most people agree is one of the most successful of international organisations which have been set up in recent times.

The International Bank is composed of fifty-eight different members, each of which is an independent sovereign State. The initial subscription to the Bank is public money, and so will be the initial subscription to the International Finance Corporation if and when it comes into operation. It was on account of its close association with the International Bank, which was brought into being by the Bretton Woods Agreement, that in deciding on its status the members drew up Articles of Agreement on very similar lines to those which already exist for the Bank. I think this is desirable, partly because the Articles of the Bank have worked quite well during the last ten years and also because it avoids confusion if an affiliate working closely with the Bank is constructed on very much the same lines. Indeed, on some occasions the staffs of these two organisations may overlap.

As the Special Orders Committee have pointed out, the Order in Council is drafted on very similar lines to that which followed the Bretton Woods Agreement in 1945, and indeed we have deliberately followed that precedent very closely. This has already existed for ten years and so far as we know has given rise to no difficulties. The Special Orders Committee have said that some of the Sections appear to them to be obscure. I would say straight away that some of the provisions of the Agreement which are reproduced in the Schedule are unusual in the context of our own practice. But I think there are here two considerations which should be borne in mind. First, this is a Corporation which may operate in the countries of all or any of its fifty-eight potential members, and not only is the Agreement designed to free the Corporation from existing restrictions but it endeavours to anticipate what future restrictions may be. Secondly, this Order will also have effect throughout the colonial territories. I am advised that if any attempt were made to translate these provisions into terms exclusively familiar to English law and practice it might lead to ambiguities and confusion in some parts of those territories where other systems are operated. In any case there are some advantages in having a standard code which is recognised throughout all the areas in which the Corporation may operate.

I will now deal with the specific points which have been raised by the Special Orders Committee. I should like first to refer to Section 3. The Special Orders Committee says that this is obscure. It relates to the status of the Corporation in regard to legal actions. I think that possibly the only sentence here which is likely to be obscure is the middle one, which says: No action shall be brought by members or persons acting for or deriving claims from members. "Members" here, of course, means member Governments. It is felt undesirable that sovereign countries should sue the Corporation in a court of law, or that there should be actions at law between sovereign countries and the Corporation itself. The view is taken that any disagreements which arise should be settled by other means than resort to law. In particular, Article VIII of the Articles of Agreement lays down two procedures which can be used for resolving any disputes. It may also be noted in the last sentence of Section 3 that, unlike some international organisations, this organisation is not to be free from seizure, attachment or execution except in so far as such seizure may arise under an interlocutory order. Execution can be secured in cases of final order. Section 6 is drawn in pretty wide terms, but I think it must be remembered that the Corporation may operate in a large number of different countries in which conditions, political and otherwise, may differ a great deal.

I should like also to draw attention to the first few words of Section 6. It emphasises that the operation of the Section is entirely controlled by the first sentence to the extent necessary to carry out the operations. Therefore the last part of the words, which are drawn fairly wide, are entirely subordinate to these first requirements. I think it may be worth emphasising at this point that the Corporation is purely a finance organisation; it will not of itself carry out any works at all. Works, presumably; will be done by contractors who will presumably contract with the promoting company, which in turn will be financed by the Corporation. So there is no question here of getting round any local restrictions about building licences or planning control or anything of that kind, because the operating company itself will not have the advantage of Section 6. The people who will be carrying out work will not have the freedom given to the Corporation under Section 6.

Section 9 (b) lays down that taxes will not be levied on the salaries and emoluments of employees of the Corporation except in so far as they are local citizens or local nationals. That means that any citizen of the United Kingdom or Colonies employed in this country, or indeed any of the colonial territories, would pay the appropriate rates of income tax under the same conditions as he does at present. If however he were employed in, for instance, the United States of America, he would be free of United States taxes, but he would not be free by virtue of this section from payment of United Kingdom taxes. It is perhaps worth noting that quite a number of international organisations grant a much wider exemption from taxation than is here envisaged.

The next section referred to in the Report is Section 9 (c) (ii). This is to meet a situation which I confess is exceedingly unlikely to happen in this country. It envisages the possibility of a tax being placed on obligations or securities issued by the Corporation simply because they are issued in a certain place or in a certain currency. This would not affect us, since in the ordinary course we tax residents of this island because they are residents and not because of the place or the currency in which any security is issued. Suppose a security were issued in London to an American citizen, we should not for that reason take a "rake-off." In fact we do not raise taxes of that character at all. The next point arises with regard to Section 9 (d) (ii). Here the same general position applies. Securities guaranteed by the Corporation are not subject to tax simply because the Corporation happen to have an office in a certain country.

The only other point which is referred to by the Committee relates to Section 4, in which it says that this section purports to limit the legislative power of Parliament. This, of course, is not so, because nothing would limit the legislative power of Parliament. If Parliament were to legislate in this country contrary to the terms of these Articles of Agreement, then we should be prevented from carrying out the terms of the Agreement into which we desire to enter and the Act which Parliament passed in July would be frustrated. And if in the future we ever legislated contrary to this provision, or indeed any other provision, then the Government would be in breach of an international agreement. But, as I have said, there is no restriction on what Parliament can do. I think it is important to remember that this Corporation deals in the first instance with public money, and secondly, that the directors are in fact representatives of sovereign Governments; and the general conditions laid clown here are what are considered the minimum essential for a Corporation which has to operate almost by definition in many of the under-developed countries in the world. It must ensure for itself reasonable freedom of action in those circumstances. I hope that this explanation will satisfy your Lordships that this is a reasonable way in which to meet our obligations under the Articles of Agreement of the International Finance Corportion. I beg to move.

Moved, That the Draft International Finance Corporation Order, 1955, reported from the Special Orders Committee on the 23rd of November last, be approved.—(The Earl of Selkirk.)

3.30 p.m.

VISCOUNT ALEXANDER OF HILLSBOROUGH

My Lords, I must confess that had I known that there was quite so much of importance in this Order as to require such a long and detailed explanation as that which the noble Earl has so courteously given, I should have taken pains to study the Order more closely before the House met to-day. But I am a little anxious as to whether or net your Lordships' House have any jurisdiction in the matter. Although the Order deals generally with diplomatic privileges between nations on matters contained in the Act, the question arises of how far the Treasury are to relieve certain items from taxation. I take it that this Order is being introduced into both Houses simultaneously and is being introduced in another place to-day.

THE EARL OF SELKIRK

I think it is to-day.

VISCOUNT ALEXANDER OF HILLSBOROUGH

In dealing with such a mixture of finance sod diplomatic immunities and privileges I think it is important that any Order should be introduced in another place first, otherwise some of my colleagues might be criticised for what they have to say about it. But if the Order has been introduced in both Houses simultaneously, we do not desire to raise any further question upon it. I am sure the noble Earl has observed during the last few days the notice which the Press has taken of the general question of diplomatic immunities, especially those affecting customs and taxation. I think the Special Orders Committee have done right in drawing the attention of the House to particular sections, In case we have any more major legislation on diplomatic immunities later on, I shall take care to study the noble Earl's speech and consider more deeply what is involved in this Order, as well as in the general question of diplomatic immunities.

LORD DOUGLAS OF BARLOCH

My Lords, I should like to ask the noble Earl to elucidate one point. He referred to taxation: is that a reference to income tax or to estate duty, or to both?

THE EARL OF SELKIRK

My Lords, if I may answer the noble Lord, Lord Douglas of Barloch, first, the reference to taxation would not relieve of estate duty anybody who is resident in this country. All that it provides is that if an employee of a corporation other than a local national is employed in this country, he will not be subject to United Kingdom income tax. It is exceedingly improbable that any will be employed in this country, and I do not think there is any need to be particularly concerned about it.

LORD DOUGLAS OF BARLOCH

My Lords, I am sorry to interrupt, but the noble Earl also referred to the exemption of securities, as well as employees, from taxation.

THE EARL OF SELKIRK

Only in so far as tax has been levied at the point of issue. It is not something we do in this country and it is unlikely that we shall ever do it. But supposing that a loan was raised in Ruritania (I use that deliberately as a mythical place), we feel that it would be wrong for the Government of Ruritania to levy a tax on what is really public funds from another country solely because they were going to be invested in Ruritania. I do not think that this point would affect us in this country in any way.

In reply to the noble Viscount, Lord Alexander of Hillsborough, first of all, the terms of the agreement have been before the House since July and anyone who was concerned could have looked at them and seen exactly what is involved. Secondly, the immunities here are pretty narrowly drawn. In particular, I would refer the noble Viscount to the immunity in regard to suing and being sued under Section 8, which says: All Governors, Directors, Alternates, officers and employees of the Corporation: (i) shall be immune from legal process with respect to acts performed by them in their official capacity … I think the noble Viscount will agree that that is much narrower than the provision in a number of other diplomatic immunities measures which have come before the House in recent times. I do not think that the reliefs from taxation given here are of importance from the Treasury point of view. The noble Viscount will notice that provision is also made to restrict the subsequent disposal of anything purchased in this country free of customs duty. Anything bought in this country and sold subsequently becomes liable for custom duty. We have made inquiries about this point, and so far as we can see all the Corporation would need would be a few pieces of office furniture which they would probably buy locally. So that there is little question of taxation. In regard to another place, if they turn this Order down, they turn it down. They are perfectly free to do so. The fact that we may have passed it does not prevent them from turning it down if they want to do so. For the reasons I have stated, I hope that the House will agree to the Order.

On Question, Motion agreed to.