§ Mr. Austin Mitchellasked the Chancellor of the Exchequer what is the tax levied on dividends on income accruing to overseas investments from (a) central Government securities, (b) local government securities and (c) stocks and shares; and how many double taxation agreements would be affected by a withholding tax on these dividends.
§ Mr. Peter ReesThe general rule is that a non-resident receiving annual interest on United Kingdom Government or local government securities is liable to United Kingdom income tax on the in-438W terest. The tax is deducted at source at the basic rate which is currently 30 per cent. Such interest is exempted from tax, or chargeable at reduced rates only, under a number of double taxation agreements. Interest paid on certain Government securities to persons who are not ordinarily resident in the United Kingdom is also exempted by statute. Where a claim to such exemptions or reliefs is established the interest may be paid in full or subject to deduction of tax at the relevant reduced rate.
A non-resident receiving a dividend from a United Kingdom company would not pay United Kingdom tax on it in addition to the tax paid by the company unless he received a tax credit on the dividend. Where such a credit is given under a double taxation agreement tax on the aggregate of dividend and credit would be withheld, at a rate usually limited to 15 per cent. for portfolio investors and 5 per cent. for corporate direct investors. Certain nonresident individuals, particularly British subjects, have a statutory entitlement to the tax credit and to a proportion of United Kingdom personal allowances so that their tax liability on United Kingdom source income is reduced to the proportion which their income chargeable to United Kingdom tax bears to their world income.
The number of double taxation agreements which would have to be renegotiated so as to allow the United Kingdom to deduct a flat rate withholding tax from all these payments would depend on the rate. It could be as high as 70.