§ (1) The proviso to subsection (2) of section thirty-six of the Finance Act, 1950 (which limits the relief granted in this country in respect of tax payable under the law of any territory outside in the United Kingdom), shall be deemed never to have had effect.
§ (2) The words "where the country is within the Commonwealth Territories" included in paragraph 4 of the Sixth Schedule to the Finance Act, 1950 (which restricts unilateral relief in respect of indirect taxation other than in Commonwealth Territories), shall be deemed never to have had effect.—[Mr. Eccles.]
§ Brought up, and read the First time.
§ Mr. Eccles
I beg to move, "That the Clause be read a Second time."
The purpose of this Clause is the same as that of the last Clause; that is to say, we are trying here to help British over- 1716 seas business. We firmly believe that if our overseas companies are penalised in comparison with the overseas subsidiaries of America, Canadian, French, Dutch or Swiss companies it is a bad thing for this country.
The Treasury and the Chancellor—and full tribute should be paid to them for this— have tried to make bilateral double taxation agreements with the countries with whom we have the most trade, under which arrangements are made not only for relief of taxation by each Government in respect of profits earned by the nationals of the other in that Government's own territory but for other matters also, such as the transfer of property.
A year ago it was decided, following recommendations from this side of the 1717 House, that a measure of unilateral relief should be granted in respect of all those countries with whom the Treasury had so far failed to make a double taxation agreement. We welcomed the proviso to Section 36 (2) of the Finance Act, 1950, which is referred to in this Clause, because it went some way. Under that proviso the Treasury agreed to give credits in relief of United Kingdom taxation up to a maximum of three quarters of the total of the U.K. tax in the case of income arising from a company operating in the Commonwealth and a maximum of a half of our United Kingdom tax in other cases.
We never really saw even last year why there should have been that distinction of three-quarters in respect of Commonwealth income and a half only in respect of foreign companies. This is not a question of Imperial Preference or anything like it. It is simply that when profits have been taxed to the full rate in the country where they were earned it does seem most unreasonable to tax them again in the United Kingdom. Therefore, if we are going to give relief we ought to give the same relief in respect of all countries, and, as we put it in our new Clause, we ought to give it up to the full limit, and not only partially.
The Government said, when we pressed this point last year, that they wanted to keep something in hand in order that they could bargain with overseas countries with whom they had not yet made bilateral agreements to enter into such negotiations. We always wondered on this side of the House whether that bargaining counter was worth anything or not. I hope that the Government will now admit that in fact it does not amount to anything. Not only has it not, so far as I know, enabled them to negotiate any further double taxation agreements that they could not have got without it, but we have the experience of the United States.
The United States have given the same relief as we are asking for in our Clause for many years, and it has not in any way embarrassed their negotiations for more comprehensive double taxation agreements with other countries. I believe it is true that they have negotiated or are negotiating more treaties with non-Commonwealth countries than we are ourselves, and that in spite of the fact that they have this handicap of having given unilateral relief up to the full 1718 amount. Therefore, I do not think that the Treasury should bring forward that argument again.
I know that this is rather an expensive Clause, and I ask the Chancellor to tell us what it will cost. I think that the existing relief costs £9½ million. Therefore, I am asking for a further £3 million or £4 million more to come. The position is quite serious, and there are two countries in particular where we need to give unilateral relief if we are to maintain our trade, and those are India and Pakistan. It has not been possible to sign a double taxation agreement with these two Governments. I do not in the least complain of that; I have no idea what are the obstacles.
What I do feel is that in the case of both these countries they have not very much income arising in this country which belongs either to the Pakistanis or to the Indians. There may be some rich Indians over here, but not many. If a country has not got a large income arising in the United Kingdom there is no real element of a double taxation agreement. They are not going to get the benefit; it is the British citizens who earn large sums of money in India and Pakistan, and it is British citizens who are now being penalised in trading there in comparison with American citizens. I feel that both sides of the House would wish our trade with India and Pakistan to be expanded and not wish a taxation obstacle to stand between us, and furthering our business there. I commend that to the House.
One further point is that the Clause would extend the unilateral relief provisions so that foreign taxes paid by an overseas company may be taken into account by United Kingdom recipients of dividends from that company in claiming tax relief in this country. We think that is wise, because at present legislation allows this only where the overseas tax has been paid to a Commonwealth country or where there is a double taxation agreement in force. There does not seem to be any justification for that distinction.
The Chancellor will refuse this Clause on Revenue grounds. I ask him to think of it on trade grounds. It is really more important to extend our trade than to bother about collecting a few million pounds—it may be £1 million or £2 million. We could do far more trade than that and bring raw materials and food 1719 to this country. As in the case of the last Clause, this is a matter of life or death to many.
§ Mr. Pitman
I have great pleasure in seconding the Motion.
I would like to put this plea not only on the grounds of trade and encouragement of trade, but on the grounds of encouragement of world collaboration. I happen to have been for many years treasurer of the International Chamber of Commerce, and it was within that Chamber that the initiative for this mutual arrangement between various nations first started. It was from a desire for world unity and world government within the circles of businessmen throughout the-world that this idea of reciprocal relief first started. I am very pleased indeed to pay to the British Treasury the greatest possible credit for the way in which they have taken up that idea, fostered it and given one of the best examples of true collaboration between nations in this respect.
What do we really mean by the brotherhood of mankind operating through world government? Do we not really mean that it should be a respect for principle and a regard of brother for brother on a basis of some form of goodwill, and not limited to what I believe the insurance companies call a knock-for-knock basis, namely, "We will do it only if you will do it back to us." That is a very poor expression of what is a real fundamental ethic underlying, this particular principle.
§ Mr. Remnant (Wokingham)
I support the new Clause moved by my hon. Friend the Member for Chippenham (Mr. Eccles). I must declare an interest in it since I am concerned with the growing of tea in India. That provides an excellent case, because as I see it it is one of equity and justice for the people whose capital from this country is being utilised in overseas or risk-bearing enterprises, where the risk is nicely balanced by those who are prepared to put their capital into it and stand a loss if their judgment is wrong.
I should like to pay a tribute to the way in which the Treasury have taken steps to get a mutual taxation agreement wish the Governments concerned. What is happening in the case of companies who have risked their capital overseas, have 1720 made a success of it and have brought the profits back is that they are being penalised for their enterprise in going overseas and making a success of it by the greatly increased amount of taxation they are called upon to pay as between the two countries.
The Chancellor of the Exchequer has very rightly referred to the fact that taxation on companies in this country will roughly be two-thirds if this Finance Bill is enacted. What is, in fact, happening to companies operating in India, such as the one I am concerned with, is that they have been paying considerably more than 70 per cent. there. My hon. Friend the Member for Dover (Mr. John Arbuthnot) brought up another case, where a sterling company operating in India and Ceylon would be liable to tax at the rate of £117 for each £100 of profit made.
Then there is the social side which concerns the amenities, conditions and standard of living of the workers employed by the company. They may get better and better but be still far from what we who are concerned with these things would like them to be. If we take into account that risk-bearing capital must get some reward, then what, in fact, we are doing is allowing a smaller amount of money to be left in those countries to improve the welfare and social conditions of the workers concerned. I believe that this question has at least the sympathy of the right hon. Gentleman, and I hope he will extend his sympathy into practical acceptance of the new Clause.
§ Mr. W. Fletcher
I support the proposed new Clause for the reason that I have a very small personal interest in the matter. Since the splitting of India and Pakistan the whole question of jute marketing has undergone an enormous change and an opportunity now exists for people from this country to reorganise and to compete on a much better basis over the whole jute industry.
In considering whether to enter that trade—I would remind the Chancellor that considerable dollar earnings have and still can result—the question whether people have the goods or the capital to undertake it resides entirely in the point of taxation. The Chancellor will one day wake up and find, from the diminishing revenue, that the power of collecting foreign currencies and establishing over- 1721 seas assets, which has been of enormous advantage to this country, has been brought to nought by the short-sighted policy of trying to get in the maximum amount, badly as the Treasury need it, without taking into account the innumerable cases in which the people responsible for enterprises have found the dice loaded just that amount against them and have had to abandon the enterprises which they otherwise would have undertaken.
§ Mr. Gaitskell
This new Clause, like the one before it, is designed to carry much further a concession which was made last year. The present situation is that relief is allowed up to three-quarters of the United Kingdom Income Tax and Profits Tax to which the taxpayer is liable in the case of the Commonwealth and one half in the case of foreign countries. The proposed new Clause is intended to increase those fractions to the full 100 per cent.
The hon. Member for Chippenham (Mr. Eccles) said he expected that I would resist the proposal mainly on the grounds of cost, but that is not the main reason I am opposing it. It is true that it would cost us directly about £5 million, but the double taxation agreements which are intended to produce the same results for the United Kingdom taxpayer would also involve us in similar cost. The trouble about the proposed new Clause is that it would involve us in that loss of revenue without our obtaining anything in return for it by way of double taxation agreements. It is far more on the ground that it would weaken our position that I am resisting the proposal.
The hon. Member seemed to be rather sceptical about that argument, but I assure him that it is absolutely vital to the Inland Revenue who are negotiating these agreements. If we throw away in advance of negotiations the most important concession that we would have made, and which the other side want us to make, we shall not be in a very strong position to induce them to do anything in return. They will say that they have nothing more to get out of the British Government, which would have already done all that they wanted. Countries who are interested, as most of these countries are who are still negotiating agreements, are particularly concerned to get 1722 free entry and the encouragement of as much British capital to be invested in their areas as they can. The granting of full relief certainly encourages that, and precisely for that reason it is giving away in advance our most important card.
§ Captain Crookshank
Will the right hon. Gentleman expand that report and say with how many countries we are at the moment negotiating. The relative importance of the countries is from the trade point of view.
§ Mr. Gaitskell
I was about to give the House some account of the position. That is the argument, and I find it a very convincing one. It has been of material assistance to us in the negotiations that have taken place in recent years, and my impression is that it has been a handicap to certain other countries, where unilateral relief in full is granted, that they have not had this card to play.
Since last year double taxation agreements have been made with France, Ceylon, Norway and various Colonies; agreement has now been reached at the official level with Finland; negotiations are about to be resumed with Belgium; draft agreements have been sent to Germany and Switzerland; Greece and Austria have indicated their willingness to discuss double taxation agreements; and the four East African Colonies have agreed in principle to agreements. Very considerable progress has therefore been made in solving the problem in a way which I am sure is far more for the benefit of the country; that is, by means of reciprocal bilateral agreements and not by the granting of unilateral relief.
§ Mr. Gaitskell
I was just about to deal with that. We have recently had discussions with India, but I am sorry to say that so far we have not been able to reach agreement with her. Both sides are at the moment considering the position, and I can only tell the House that we shall persevere in our endeavours to get a fair agreement. I am also sorry to say that we have not made progress with the Argentine, Brazil and Venezuela, but I am sure the House will agree that there has been a good deal of progress on the whole. There remain outstanding a number of important negotiations in which 1723 this matter will be of substantial importance.
There is only one other thing I can say on the subject, and that is that the extent of the difference made by granting the full unilateral relief, particularly so far as businesses in Commonwealth countries are concerned, can very easily be exaggerated. The three-quarters relief which is granted at the moment reduces very substantially any net burden there may be from double taxation, and when one remembers that on top of that any net burden that remains can be treated as a cost for the purpose of United Kingdom tax, one can see that the extent of it is very small. Roughly, the position is that on the average—depending on the amount of profits distributed—60 per cent. is taken in tax in the United Kingdom, and that in the case of the Commonwealth in present circumstances it would be fair to say that not much more than 63 per cent. in total is paid. Therefore, the difference is not a large one in those cases. I readily admit that it is larger in the case of foreign countries.
What we feel about it is this. We naturally wish to secure freedom for the companies and individuals concerned from the burden of double taxation, but the burden is not nearly as heavy in present circumstances, and with the concesssions we made last year, as might be supposed. On the other hand, the advantage of having this margin in the negotiations is, I can assure the House, a very important one and it would be a great mistake to give it away at this stage.
§ Mr. John Arbuthnot (Dover)
The Chancellor said that any burden which a company had in respect of taxation in the
§ Commonwealth was treated as cost for United Kingdom tax purposes. I must here declare an interest in this matter. Does the Chancellor's statement indicate that he is prepared to allow as a cost Indian tax on profits earned in Ceylon? So far that has not been allowed as an offset against United Kingdom tax.
§ 10.15 p.m.
§ Mr. Gaitskell
The hon. Gentleman has been good enough to write to me about that case, and I would prefer to reply to him in writing, because it is a complicated and special one.
§ Question put, and negatived.
§ Mr. Speaker
I promised to safeguard the new Clause dealing with hydrocarbon oils standing in the name of the right hon. Member for Aldershot (Mr. Lyttelton) and the right hon. Member for King's Norton (Mr. Geoffrey Lloyd). Do they wish to move it?