Part of Orders of the Day — Finance Bill – in the House of Commons at 12:00 am on 4 June 1964.
Mr Alan Green
, Preston South
12:00,
4 June 1964
I am glad that the hon. and learned Gentleman has raised this point. I think that the principle of allowing relief for underlying tax was disturbing to the Labour Party on a previous occasion. Perhaps I may start at this point, because I hope that it will make it clearer to the Committee. I think that what hon. Gentlemen opposite were saying originally, though they have not done so today, was that it is very much better to rely on double taxation agreements and to go for those. I think that is a fair statement of what the Opposition would prefer.
I would also prefer to have double taxation agreements, and I agree on that straightaway. But, as a matter of practice, such agreements often take a long time to negotiate, often through no fault of the overseas country with which one negotiates. For a very poor, developing country, a double taxation agreement may not always be very attractive to negotiate. Meantime, there is the plain fact of companies which have large share ownerships or in some cases total share ownerships overseas, and so do not want to wait for the negotiation of double taxation agreements. This brings us up to date on the arguments deployed last year.
It has increasingly tended to be the case that British companies or British individuals invest overseas in new enterprise with foreign partners—this is a statement of fact and I am not arguing against it—in a situation where under the Laws of the foreign country they are not permitted to own 50 per cent. of the equity and in some cases must own much less. In such circumstances it is not desirable to discourage the British investor—particularly if it is a developing country, because it would be of assistance to the economy of that country to have the investment made—by putting him under some rather special penalty because relief is not available for underlying tax.
If the figure is kept at 50 per cent., as it is now, and the Treasury gives special exemptions—this is the second thought put to me by the hon. and learned Gentleman—it is all rather cumbersome. I am not saying that it is impossible, but it is rather cumbersome. The Chancellor has come to the conclusion, after a good deal of experience over these things, that it would make sense to reduce below 50 per cent., down to 25 per cent. as a general rule, and that we shall suffer no administrative or real fiscal penalties if we do so. On the other hand, we shall, in fact, make it rather easier for new investments to go on being made since one of the disincentives to making them will have been removed. An administrative difficulty will have been removed as well. In terms of the experience that we have had, it makes common sense, we think, to enlarge the bounds in this way.
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