§ The Financial Secretary to the Treasury (Mr. John Moore)
The hon. Gentleman refers to a great British victory. It began as a defeat, but ended as a victory.
I beg to move,That an humble Address be presented to Her Majesty, praying that the Double Taxation Relief (Taxes on Income) (Falkland Islands) Order 1984 be made in the form of the draft laid before this House on 20th January.Our arrangements are slightly different from those that I expected, and I shall now proceed rather more slowly.
I should explain to the House why we have double taxation arrangements with the Falkland Islands. The Falklands are of course—like all dependent territories—autonomous in fiscal matters and have their own tax system. It is clearly, therefore, just as advantageous to both sides to have an arrangement as it is with any other countries.
The existing arrangement—it is called an arrangement in the case of a dependent territory rather than a convention—was amended in 1968 and 1974 but is now rather dated. The Falkland Islands authorities approached us for a new arrangement to take account of changes which they were contemplating in their tax system, particularly the special exemptions for investment in their "pioneer industries". We were of course more than happy to pursue negotiations, and the new arrangement now before the House for approval is the outcome.
§ Mr. Foulkes
The Minister is being very helpful in explaining why we must have a double taxation arrangement with a dependent territory. Could he explain to us, very briefly, what double taxation arrangements we have with Jersey, Guernsey and the Isle of Man?
§ Mr. Deputy Speaker
If the hon. Gentleman strayed into that, he would not be referring to the convention that we are discussing.
§ Mr. Moore
As you, Mr. Deputy Speaker, have reminded me, I should try to stick to the particular case. When I wind up the debate, if there is a question about the nature of other areas where we have arrangements with dependent territories, I will attempt to answer it.
The arrangement with the Falkland Islands contains an important new provision which permits credit to be given against United Kingdom tax liabilities for tax which has been relieved by the islands under the provisions to attract investment in their pioneer industries. In other words, United Kingdom tax will be reduced by the amount of the tax that would have been paid in the Falkland Islands on the income and profit in question but for these pioneer reliefs. Similar double taxation agreements are negotiated with most developing countries. Relief of this kind is already an important feature of a number of our double taxation agreements, and I hope it will have the support of the House.
There is no separate Falkland Islands withholding tax on dividends flowing to United Kingdom residents. But, 926 subject to the other provisions in the arrangement, Falkland Islands tax is chargeable on individuals at graduated rates on all income from the Falklands, on a similar basis to United Kingdom tax. Any excess of the Falkland Islands tax credit on dividends over the individual's final liability there is payable to him. Individuals resident in the Falkland Islands are entitled to the tax credit on United Kingdom dividends, and the rate of United Kingdom tax is limited to 15 per cent of the dividend, plus tax credit. In the case of companies, the position in both countries is the same—there is no tax on dividends flowing to the other country and no tax credit.
The House might find it helpful if I mention tax arrangements in relation to United Kingdom troops and construction workers. It has been the subject of some interest lately. Members of Her Majesty's forces serving in the Falkland Islands remain liable to United Kingdom tax on their remunerations. Under tax legislation, their duties are treated as being performed in the United Kingdom, even though carried out abroad, and they do not therefore qualify for the foreign earnings allowance. Overseas allowances to compensate for the additional cost arising from postings abroad are exempt from United Kingdom tax.
For construction workers, the Falkland Islands Executive Council has agreed not to tax the wages of workers on construction projects in the islands and will introduce a special ordinance to give formal effect to that arrangement. For United Kingdom tax the normal rules will apply. If they are resident in the United Kingdom their earnings will be liable to United Kingdom tax, subject to the appropriate foreign earnings deduction, and if they are not resident in the United Kingdom their earnings will be exempt from tax.
§ Mr. Tam Dalyell (Linlithgow)
I do not expect the Minister to answer this question off the top of his head. Did such arrangements apply, for example, to the construction workers of the 1950s and 1960s who went out to RAF Gan, or is this a new arrangement?
§ Mr. Moore
I do not know. There is some confusion here in that where a double taxation agreement is in place the taxation locus of the worker is not as relevant as the decision taken, in this case, by the Falkland Islands Executive Council in regard to the construction workers. It simply means that United Kingdom tax rather than Falkland Islands tax is paid and there is a credit against the worker's pay later. The net effect, theoretically, for the worker in regard to different residences is the same. I shall try to answer the hon. Gentleman's specific point.
Some right hon. and hon. Members might ask why there is some retrospection to 1982. The text of the arrangement was agreed at official level in May 1981. It seemed likely that all the necessary formalities would be completed by the end of 1981, and it was agreed that the arrangement should have effect from 1982. In the event it proved impossible for the Falkland Islands Executive Council to complete its procedures during 1981. The invasion meant that it was not until last year that the Falkland Islands Executive Council approved the arrangement. In the circumstances, it is considered appropriate that the arrangement for the tax relief for which it provides should have effect from the originally intended date.
927 The House might find it convenient if I comment on the double taxation arrangements. Whether a person is a resident of the Falkland Islands or of the United Kingdom is decided by the respective domestic laws. When a person is resident in both, paragraphs 4(2) and 4(3) provide rules for the problem, and paragraph 4(1) refers to laws and how they apply to the Falkland Islands. The Falklands have their own laws which are called ordinances. One of them provides that the general statutes in force in England on 22 May 1900 are enforced in the colony in so far as local circumstances permit and provided that they are not inconsistent with or repugnant to any local ordinance. Such ordinances cover a range of topics, including income tax. In addition, the rules of common law and equity which are applicable in England are also applied by courts in the Falklands. Moreover, some United Kingdom statutes and Orders in Council apply directly or have been extended to the Falkland Islands, whereupon they become part of the local law and take precedence over local ordinances.
There has been some suggestion that the Falklands might be seen as a tax haven. That is obviously untrue as the Falklands show none of the characteristics of a tax haven. They have a comprehensive tax system which covers corporations and individuals. The rates for both are broadly in line with those in the United Kingdom. For those with particular interests in the nature of tax havens, it may be helpful if I remind the House that with certain dependent territories such as Bermuda, the Cayman Islands and the British Virgin Islands there are no double taxation agreements, although there once were. Those areas are regarded as tax havens because no taxes or low taxes apply and we regard double taxation agreements as inappropriate in those circumstances.
§ Mr. Foulkes
That is an amazing statement. Indeed, it is outrageous. Why does Her Majesty's Treasury regard it as inappropriate to have double taxation arrangements for the Cayman Islands? Why do we foster — nay, encourage—the development of that means of avoiding United Kingdom tax? In Committee on the last Finance Bill the present Chief Secretary insisted, parrot-like, week after week, "We need the money." I see that the hon. Gentleman remembers that. If so, why do we not get rid of the Cayman Islands tax haven and introduce a proper tax arrangement with those islands?
§ Mr. Moore
As I tried to say at the beginning, but the point clearly was not taken by all hon. Members, double taxation arrangements are for relief, not for raising taxes. That is what we are discussing today. I was trying to show why it was not appropriate, despite public press and other comment, to consider arrangements of a tax haven nature in relation to the Falkland Islands.
§ Mr. Deputy Speaker
The hon. Gentleman did not say so before, but if it really is a point of order, I will, of course, take it.
§ Mr. Foulkes
The Minister has said that we are talking about an arrangement relating to the avoidance of double 928 taxation. If the Minster reads the schedule—I am sure that you, Mr. Deputy Speaker, have read it—he will see that it refers also tothe Prevention of Fiscal Evasion".That means tax avoidance.
§ Mr. Deputy Speaker
We are talking about fiscal evasion in the Falkland Islands, not in other territories.
§ Mr. Moore
Clearly, I was unwise to try to be helpful and I retract the attempt. I repeat that the arrangements in the Falkland Islands in no way resemble those of a tax haven.
I believe that the terms of the order take proper account of the policy requirements both of the United Kingdom and of the other territory concerned. I commend it to the House.
§ Mr. Jeff Rooker (Birmingham, Perry Barr)
I, too, shall be brief. We make no apology for dealing with this on the Floor of the House rather than in Committee upstairs where it would probably have gone through on the nod. As the situation in the Falkland Islands has changed somewhat in recent years, every parliamentary opportunity to raise matters relating to the Falklands must be taken for the benefit of hon. Members who wish to discuss such matters.
The Minister said that the reliefs were backdated to 1982 as a result of requests from the Falkland Islands Council in 1981, presumably due to the pioneer industries there. I suspect that that flowed from the developments which were to follow the first Shackleton report back in the mid 1970s. There was to be expansion in the Falkland Islands, although the population was declining.
Since 1982, and for the foreseeable future, the economic situation in the Falklands has been changed out of all recognition compared with what must have been envisaged when the agreement began to be discussed by the Falkland Islands Council and the British Government. Are the Government satisfied that, despite the build-up of the Falklands economy in the meantime, which is bound to have received a fillip from the additional number of people, contractors and companies there, all the points are covered by the agreement? As I understand from the small print, this agreement cannot be changed for at least five years, and cannot be reneged on by the United Kingdom Government or the Falkland Islands Council. Simply because of what is happening there now, we are talking about millions rather than hundreds of thousands of pounds. That is an important point.
The Shackleton report and the economic study are partly relevant to the debate because of the flow of funds between the Falklands and the United Kingdom. The position has changed dramatically since 1974, because until then the United Kingdom gained—some would say that it ripped off the Falklands — and the flow of taxation was generally all one way. From 1974, the flow has gone the other way. Do the Minister and the Government see this changing as a result of the changes implied in the order?
Another relevant point comes in paragraph 3.72, which says:Sound independent, professional financial advice is also generally lacking in the Falklands".If that is so, given that the Falkland Islands Trading Company, which is owned by the Falkland Islands 929 Company, acts in effect as a banker for its employees and many others in the islands — individuals, farming companies and partnerships — what steps have the Government taken to ensure that the boom in the amount of money now circulating there is not being siphoned off? This is relevant because the position has changed so dramatically.
It may be that there is now an experienced bank manager, as the Shackleton report suggested thatan exprienced bank manager would be able to provide this missing ingredient.Is this matter being taken care of in the discussions between the Government and the Falkland Islands Council? That point has to be answered by the Minister.
I have no doubt that my hon. Friends will raise the matters that have been reported in the press recently. Last weekend, there were reports of allegations that some of the payments to people in the Falklands are being paid via banks in Jersey. That is relevant to matters in the agreement, simply because of the number of bodies and the earning power of the Falklands.
On the other hand, a couple of weeks ago, in business questions, we heard about the appalling conditions of some craftsmen who, according to the Daily Telegraph of 10 February, are being treated like animals. They are paid £250 a week, which sounds a princely sum, but, given their appalling conditions, are all the loopholes being blocked in the sense that no one can swap non-taxable pay in exchange for working in such conditions? That point has also to be answered.
Would the position in this double taxation order change in any way if or when normal financial arrangements with Argentina re-emerge? There must be an economic link soon, and, as a result of any discussions that the Government must be having with Argentina, will it be necessary to make changes in the order?
The Minister must have come prepared to answer my next question. Are any Government payments for work in the Falklands or associated with the Falklands economy, whether it be salaries, payments for properties or to construction workers, management fees to individuals or companies, being paid other than in the United Kingdom or the Falklands? If the answer is no, there will be no problem about tax avoidance because of the arrangements in this order. The Government must be able to answer that question, because, by and large, they are funding the flow of money.
The Falklands economy has changed, and will change out of all recognition this year and in the next couple of years, compared with what it was when the agreement began. Therefore, it is right for the House to deal with the matter, so that it can be properly reported to the people in the Falklands, who are not unconnected with this.
The Minister talked about tax havens. It is worth pointing out to the Government that the 1976 Shackleton report recommended that the Falkland Islands should not seek to become a tax haven. The implication is that if the Falkland Islands wished to become a tax haven, the Government could do nothing to stop them, which would abrogate this order.
How many other double taxation orders does the United Kingdom have with groups of 2,000 people round the world?
§ Mr. Tam Dalyell (Linlithgow)
The Minister said that the Falkland islands were autonomous in fiscal matters. I echo the point of my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker): where else are about 1,800 people autonomous in fiscal matters' It is a strange set-up, but be that as it may.
I must take responsibility for mentioning the allegations that have been made that money is being paid direct from the earnings of those who are engaged in construction and other works in the Falklands to Jersey banks. No hon. Member should minimise the rough and tough conditions in which those people are working. The reports are of inadequate accommodation, eight people sleeping to a portakabin, living space of 3.75 metres by 1.75 metres, cockroaches, flies and heaven knows what, and —it is no laughing matter—a considerable amount of diarrhoea and infection. In those circumstances, we would not wish to begrudge those who are doing the work. Nevertheless, whatever the conditions, it is deeply unsatisfactory that some people—not all: that is what makes it the more invidious—should have their money paid into banks in Jersey.
This happens not only in the Falkland Islands. I know a good deal about oil rigs, simply because in my constituency much North sea oil comes ashore at Hound point. A number, possibly an increasing number, of oil rig workers are paid through banks in Jersey. What is the Treasury's information about this, and is there a distinction made between British banks and, for example, in Jersey, the Bank of America, Citibank, and the Banque Nationale de Paris?
Since the dismantling of exchange controls, there is only one reason for paying money into banks in Jersey, and that is tax evasion. The question arises: is this equitable, and is it tolerable in terms of the Government's contract? This is a difficult area of contract law. People who pay, in this case the Government, the amount of money that is now pouring into the south Atlantic should at least make it a condition that contractors, subcontractors and possibly even sub-subcontractors should pay it into British banks. What people do with the money once it has been received is entirely their business. If they like to invest it in the United States, that is their business. It is intolerable that some favoured people should be allowed to receive their pay through Jersey banks.
If some construction workers are allowed to do this, what about the men of the Royal Navy? If that happens, why should Royal Navy men, having equal hardship and possibly equally uncomfortable lives, Royal Marines or Royal Air Force service men not receive their service pay through the Jersey banks? What is sauce for the goose is sauce for the gander, and there are personal problems of equity. I am told that a considerable hassle arises from this practice. It is insufferable that those who are working equally hard should find that the people working alongside them are getting markedly more pay in real terms than they are. There is an issue here, and we await the Minister's reply with some interest.
I want to raise two other points. The first is the taxation of people working on British contracts for vessels flying a foreign flag. The Merchant Navy and Airline Officers' Association contacted me. Eric Nevin, who is well known to Treasury officials, wrote a formal letter to the Minister of State for the Armed Forces: 931The MNAOA is particularly interested in the replies concerning the charters by the Ministry of Defence of British and foreign flag ships for work in the South Atlantic. We have already voiced our concern at the number of foreign ships being used by your department and in October last year we met Lord Trefgarne to discuss this matter. It is interesting to note such concern now being raised in Parliament. However, our members presently working in the Falklands area continue to express their concern on this subject. They have seen the foreign flag vessels now on charter to your department and find it hard to believe that no British flag alternatives were available. We are especially concerned by your department's refusal to reveal the costs of such charters. We feel this is contrary to the methods by which the freight market operates. Our members have also expressed the belief that, as tax payers, such information should be readily available and withholding it cannot be justified as being against the public interest.On behalf of the Merchant Navy and Airline Officers' Association, I should like to ask the Treasury what is the tax position of people working in ships like the Herta Maersk or other chartered ships under foreign flags. Do we understand that they pay no UK tax? My guess is that no UK tax is paid by people working in ships under foreign flags. If that is the situation, it should be answered. I acquit the Minister of having to answer what I suspect is a Department of Trade and Industry point on the general issue of the use of foreign ships, although if British ships are available, given the unemployment among British seamen, and given the attitude of the General Council of British Shipping, I should have thought that the Treasury, being the most important Department of Government, would at least have made its policy clear.
§ Mr. Rooker
My hon. Friend should take note of paragraph 8, which states:Profits from the operation of ships or aircraft in international traffic shall be taxable only in the territory in which the place of effective management of the enterprise is situated.That precisely covers the point that my hon. Friend is raising.
§ Mr. Dalyell
Not for the first time, I receive great help from my hon. Friend. I should like an answer to that point.
Concerning the situation in the airport, it ought to be known to the Treasury that, for all the argument that the House is hearing, there is now the greatest doubt among serious people, such as airline pilots, as to the safety factors in this great construction work. I shall quote briefly:It is a fact that the official figures in use worldwide (due to commercial pressures) allow legal departures with only this one second thinking time. It is also a fact that more often than not there is another 2,000ft or so of runway beyond the 'required' length, this will not be the case at Falkland.That is an airline pilot making a statement about the safety of that vast construction work—
§ Mr. Deputy Speaker
Order. I do not think that the safety aspect is part and parcel of the debate tonight.
§ Mr. Dalyell
I am concerned with construction and the pay of the construction workers. However, I always know when to take a hint, so I shall not abuse the House.
§ 11.6 pm
§ Mr. George Foulkes (Carrick, Cumnock and Doon Valley)
I am grateful for the opportunity to say a few words.
Two of the double taxation arrangements that we have been discussing have been with autonomous, sovereign countries. I find almost Gilbertian the thought of the 932 United Kingdom Government, which represents 50 million people, negotiating double taxation arrangements with a colony of 1,800 people. I cannot remember how many people work on the island, but taking account of the retired people, the children and the women who do not work, I doubt whether there are more than 500. That is not a significant tax base.
Rather more important is whether we are dealing with an autonomous country. How can we negotiate double taxation arrangements with a colony? That raises issues of principle that we shall have to explore—and I accept your ruling on this, Mr. Deputy Speaker—in more detail on some other occasion. As the Minister is responsible for this double taxation arrangement, will he tell us exactly with whom on the Falkland Islands it was negotiated? Which competent authorities negotiated it on behalf of the Falkland Islands Government?
I suspect that we go round in a circle. The Falkland Islands Government consists of two bodies — the Executive Council, commonly known as EXCO, and the Legislative Council, known as LEGCO. The Civil Commissioner, formerly the Governor, Sir Rex Hunt, chairs both those bodies. The Civil Commissioner is an appointee of the Foreign and Commonwealth Office—a career diplomat of the United Kingdom Civil Service. That means that we are negotiating with ourselves. That is a strange position.
This order comes before the House of Commons. But when the legislation of the Falkland Islands is being discussed, it is considered by LEGCO with representations from EXCO, and then has to come before the Foreign Secretary for approval. So it is a little bit of a farce that we are negotiating and concluding a double taxation agreement with ourselves.
I want the Minister to tell me with whom it was negotiated. What discussions took place, over what period of time? What representations were made on behalf of the Falkland Islands Government and what account was taken of them? Or is it really, as I suspect, something drawn up by the United Kingdom Government and laid down and accepted by both sides—which are really the same side in the end?
I had an exchange earlier with the Financial Secretary. As my hon. Friends are aware, I do not relish harsh exchanges. In the light of the comments that I made then, the Financial Secretary will probably agree that part of the reason for a double taxation arrangement such as we are discussing is to do with the prevention of fiscal evasion. In paragraph 29, referring to the exchange of information, it is stated:The competent authorities of the territories shall exchange such information (being information which is at their disposal under the respective taxation laws in the normal course of administration) as is necessary for carrying out the provisions of this Arrangement or for the prevention of fraud or the administration of statutory provisions against legal avoidance in relation to the taxes which are the subject of this arrangement.It is, therefore, for the prevention of fraud and tax avoidance. That being so, will the Financial Secretary say what precedent this double taxation arrangement provides for negotiating — if that is the right word — double taxation arrangements with, for example, the Cayman islands, Bermuda, Hong Kong and other dependent territories? Further, what precedent is there for negotiating double taxation arrangements with Jersey, Guernsey and the Isle of Man, which are not dependent territories but which are, by a strange constitutional arrangement, under 933 the general aegis of the Home Secretary? I should have thought that the United Kingdom Parliament, with its paramount responsibility for the dependent territories and offshore islands, could negotiate and conclude double taxation arrangements of the type that we are discussing tonight with those areas.
I am using the Falkland Islands as an example, because it provides a useful precedent. When we were debating the Finance Bill, as it then was, and Ministers were explaining the need to raise taxes on, for example, chewing tobacco —my hon. Friend the Member for Glasgow, Cathcart (Mr. Maxton) will recall that I fell asleep during that discussion—and to raise money by changes in capital gains tax and capital transfer tax, we received no assurances about swift and certain action to deal with tax evasion and avoidance and fraud in, for example, Jersey, Guernsey, the Isle of Man, Bermuda, the Cayman islands or Hong Kong.
If the Government want to raise money, they should try to get hold of the hundreds of millions, if not billions, of pounds that are lost by tax avoidance, evasion and fraud through the use of tax havens, instead of clouting the old people by cutting their housing benefit. Only recently we witnessed in this House £200 million being taken from the elderly, the disabled and others in housing benefit.
The Financial Secretary will be aware that a deputation of Canadian pensioners came here recently. I hope that the sort of arrangements in the provisions that we are discussing tonight will be taken into account when the Government are considering representations from United Kingdom citizens, many of whom worked all their lives in this country and who are now in Canada but who are not getting the benefit of pension indexation.
I hope that the Financial Secretary will make representations to his colleagues at the Foreign and Commonwealth Office about the pay differentials that exist on the Falkland Islands. Falkland Islands residents doing exactly the same jobs as people from the United Kingdom on short-term contracts are being paid half as much. Obviously that is relevant to taxation. If there is a common taxation regime and the native Falkland Islanders are being paid only half as much for the same jobs as those whom we send out to those islands, there are great inequities.
§ Mr. Dennis Skinner (Bolsover)
It seems that the order is concerned to ensure that those on the Falklands and in Sweden, for example, pay only single tax and no more than that. They may even pay less than single tax. To my mind, the order is wrongly titled. The Minister should make up his mind what effect the order has. He tried to explain to my hon. Friend the Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) that it is the intention to give those living on the Falkland Islands the opportunity to pay only single tax and not to be subject to greater taxation than that. Are we on an even keel now?
§ Mr. Skinner
I do not think that the Minister is sure what effect the order has. I understand that the principle behind the order is to make it clear to those who living on the Falklands that they will not be penalised by taxation 934 to the extent that they would be if they were living in Britain. The purpose is to protect single taxation and not to introduce double taxation.
There are those in the poverty bracket in Britain who are taxed at 80 per cent. if they have some money in the bank. That is the result if they have a windfall and they have more than —3,000 in the bank. If someone in that position is in receipt of —30 net a week and he is found through some circumstances to have more than —3,000, he will be subject to about 80 per cent. taxation. Will anyone on the Falklands be penalised in the same way as those in this country when they are in receipt of a few extra bob, when their occupational pension or disablement pension increases?
That is why it is more than important to take up the discussion about the effect of putting money in the bank. It seems that, in the light of the order, there will not be the 80 per cent. taxation to which those in the poverty bracket in Britain are subject. If the money goes info a bank in Jersey, no tax will be paid at all.
The concept of "permanent establishment" is relevant to the prefabricated buildings that are being erected on the Falkland Islands and the money that will be made from that. The contract was awarded to a Swedish firm last year. It has a sort of front organisation called James Brewster Associates, an exhibition firm that is based in Britain and which took on the job of supposedly building the units. In fact, a Swedish firm had gained the contract, although it did not submit the lowest tender. That gave rise to some people saying, quite properly, that the Prime Minister was not batting for Britain when that tender was accepted. She was batting for Sweden, and James Brewster Associates has never built a house during its existence. I want to know what will happen to the money that will be made from the erection of the units.
We have discussed a double taxation order for Sweden and the units for the Falkland Islands are being built by a Swedish firm that is fronted by James Brewster Associates. That is a company that did not file its accounts for two years on the trot.
§ Mr. Skinner
It is in order, Mr. Deputy Speaker. This matter deals with permanent establishments. That company filed its accounts when pressed to do so by parliamentary questions. How is that company fixed for taxation? One of the lowest tenders came from a firm just outside my constituency, the Hallam group. I thought that the Prime Minister would have batted for Britain, the Hallam group and British workers, but she batted for Sweden.
§ Mr. Skinner
This is a complicated business. We have just debated an order on double taxation relating to Sweden. A Swedish firm is building prefabricated units in the Falklands. It put in a tender—
§ Mr. Deputy Speaker
Order. The hon. Member knows that the conditions of tender are not related to this debate. The hon. Member can talk about taxation, the money received and so on, but the conditions of tender are not for discussion.
§ Mr. Skinner
It is important if a firm is making massive profits from the taxpayer. The Prime Minister and Ministers often say that the Government do not have any money, that it is taxpayers' money. The taxpayers' money will go to that Swedish firm whose costs have increased from £70,000 a unit to £230,000 a unit. How much tax is that Swedish firm paying? How much will it hand over to the Treasury? I should have thought that the Financial Secretary would be glad to grab hold of some of that money.
Will the Swedish firm pay anything? Will the Double Taxation Relief (Taxes on Income) (Falkland Islands) Order, following the Swedish order, allow that firm to get away with almost anything? It is said that it will cost a small fortune to build the prefabricated units. The price has doubled. The Financial Secretary must answer that charge. It is important that the House and the taxpayers know why these massive profits made by that Swedish company will not be taxed. That company will, no doubt allege that it has spent every penny trying to erect those units.
This matter is relevant, Mr. Deputy Speaker. The Financial Secretary should be able to tell the House how much money will come from the firm which won the contract to build the prefabricated units. The same question would apply to all the contractors in the Falklands.
My hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) referred to the dramatic changes in the Falklands, and no one can deny that. Will we receive much more taxation from that area? Is it, as my hon. Friend the Member for Carrick, Cumnock and Doon Valley said, that much of the money is being siphoned off to other tax havens such as Jersey, the Channel Islands and the Cayman Islands? Is that why James Brewster Associates won the contract—to siphon off the money on behalf of the Swedish firm?
The Financial Secretary has a duty to tell us how much extra taxation is likely to come from the Falklands because of the increased activity there, the increased amount of monwy in circulation, the building of the airport and so on. Whereas the amount of taxation to be paid previously would have been relatively small, much more tax must now be paid. We should know how much extra income the Chancellor's coffers will receive because of that activity.
§ Mr. Moore
We have had an extensive and interesting debate. I do not complain about the degree to which hon. Members were able to spread their wings, because they had the opportunity to do so. I shall seek to contain myself by addressing myself to areas of direct relevance. I shall, as always, later in correspondence deal with any matters beyond double taxation arrangements about which I can help hon. Members.
The hon. Member for Birmingham, Perry Barr (Mr. Rooker) raised a legitimate point of the nature of the pioneering industries and asked whether, in 1978–79, all the activities in the Falklands had essentially changed the character so much that there was a need for a different type of double taxation arrangement. Double taxation in developing countries is geared more to the nature of the economy—agricultural, rural, or those industries in the earlier stages of development. Therefore, I do not see that there has been any substantial change, but the point made by the hon. Gentleman is relevant. He pointed out also that 936 a new agreement could not be produced for five years. Although a five-year life is provided, should circumstances require it, both parties may agree to earlier changes to reflect the new circumstances. I shall take the point on board, but I do not see the need to consider changes at this stage.
The hon. Member also asked whether any changes were needed to help along the path towards normalcy in the relationships between the United Kingdom and Argentina. That is a valid point, but I do not think that a double taxation arrangement that seeks to advance decent business relationships between the two communities would hinder or inhibit that advance. It is a germane and important point. The hon. Member asked about the relationship between the Falkland Islands and the United Kingdom Government, and I shall bring the points that he made to the attention of my right hon. and learned Friend the Foreign Secretary.
The hon. Member asked about future money flows. He talked about Lord Shackleton and his recommendations. The Government's aim is to promote the economic development of the Falkland Islands by following, in large part, Lord Shackleton' s recommendations. The first grant of £31 million announced to the House in December was a result of those recommendations.
A number of questions were asked by the hon. Member for Linlithgow (Mr. Dalyell) and by the hon. Member for Perry Barr about the payment of earnings. That is entirely a matter for the contractors. Where earnings are paid has no relevance to the double taxation arrangements. I am not talking solely about the Falkland Islands. The only material questions is whether the tax which should be paid is being paid. There is no reason why payment in a Jersey bank account should prevent the proper deduction of United Kingdom tax in the normal way. Although not easy to answer it is a different question to that about the location of pay.
The hon. Member for Perry Barr also asked about banking arrangements. I am pleased to say that the First Commercial bank, a branch of the Standard Chartered bank I am advised, has opened in Port Stanley. It was inaugurated by my right hon. and noble Friend, the Minister of State, Foreign and Commonwealth Office when she visited the Falkland Islands last month.
§ Mr. Dalyell
I do not ask for an answer tonight, but do we have a clear assurance that the Treasury, at least, will study what has been said about payment to Jersey and give a considered reply at the appropriate moment?
§ Mr. Moore
I can reassure the hon. Gentleman that there is a major difference between the responsibilities and duties of the Inland Revenue to seek and collect taxes due, as they clearly would be in the areas about which we are talking, and those where contractors pay their employees' funds. There is a distinction between the two, but I have heard the hon. Gentleman's point, and I shall study it.
The hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) dwelt upon the autonomous nature of the Falkland Islands. I shall not discuss his observations about the size of the organisation, but I would point out, in relation to the DTA, that the Falkland Islands Civil Commissioner seeks advice and recommendations from the Executive Council—Exco as the hon. Gentleman called it—about whether to make the necessary order. While not obliged to do so, the Civil Commissioner 937 generally follows the recommendations of the Executive Council. The new arrangement has already been considered and approved by the Executive Council. Formal approval by the Legislative Council is not required.
The hon. Member for Linlithgow asked also about the position of people employed on chartered foreign flag ships. I am advised that earnings from work on foreign flag vessels are regarded as being earned outside the United Kingdom where the ship is involved in international traffic. In those circumstances, the employee is subject to United Kingdom tax if he is resident in the United Kingdom, but not otherwise.
Article 17(3) preserves United Kingdom taxing rights on earnings from employment on United Kingdom-operated ships, and does not remove our normal taxing rights so far as they operate on United Kingdom residents working on foreign vessels.
§ Mr. Dalyell
Surely the policy consequence is that every effort ought to be made to use ships under a British flag. That is not just the view of those of us who might be critical of the whole operation, but of the General Council of British Shipping, the Merchant Navy and Airline Officers Association, the National Union of Seamen and British shipping interests in general.
§ Mr. Moore
I could not agree with the hon. Gentleman more on all issues of this kind. I would have thought that the basic objective of all Ministers would be to seek to use United Kingdom material, vessels and activities so long as they were efficient and provided the right service. Any British Minister would share that attitude.
The hon. Member for Carrick, Cumnock and Doon Valley asked many questions, but I would be out of order if I sought to answer them. He seemed to suggest that there was a precedent in relation to this DTA that might be pursued in other areas. I take note of what he said, but it would be wrong to concern myself with other areas when discussing this DTA.
The hon. Member also asked about Canada—not a germane question, but one in which I have an interest. I take note of his comments and will come back to him on 938 that specific Canadian point. He also asked about pay differentials. Much as I would wish to go into that issue, it does not come under my area of responsibility.
§ Mr. Rooker
I was not aware of the nature of the bank that had opened on the Falkland Islands. In view of the Minister's remarks on shipping, why did not a British bank open on the Falklands? So far as I know, Standard Chartered is an American-owned and controlled bank—[HON. MEMBERS: "No."] It is not one of the big five British banks, and it is certainly not wholly British. Did the Treasury ask one of the big five to go there?
§ Mr. Moore
That shows that one cannot give good news to all sides of the House. Earlier, I drew the hon. Gentleman's attention to the happy news that a British bank had been opened in the Falklands. I hope that the development of double taxation arrangements of this kind will encourage the further development of other British activities. I trust that the hon. Gentleman's support of the five clearing banks, as opposed to other British banks such as the Trustee Savings bank and the Co-op, will not discourage him from trying to encourage other such organisations from going.
Finally, but by no means least, we had a contribution from the hon. Member for Bolsover (Mr. Skinner). I appreciate that he had to participate in the debate because that excellent United Kingdom firm Coalite is headquartered in Chesterfield. Given that it has about 2,000 employees in the Chesterfield area, we are all concerned about the nature of the subsidiary of that company—the Falkland Islands company. To that extent, I clearly realise that the hon. Gentleman has fully understood the nature of double taxation arrangements and their prime purpose, which is to seek to encourage the development of decent business relationships between communities — in this case, the Falkland Islands and the United Kingdom. Therefore, I am sure that he will join me in commending the order to the House.
§ Question put and agreed to.
That an humble Address be presented to Her Majesty, praying that the Double Taxation Relief (Taxes on Income) (Falkland Islands) Order 1984 be made in the form of the draft laid before this House on 20th January.