I beg to move amendment No. 97, in
clause 150, page 90, leave out lines 5 to 7.
This is a probing amendment relating to non-resident companies and the extent of charge to income tax. The clause provides that a non-resident is subject to income tax by withholding only in the case of income falling within subsection (2), rather unhelpfully referred to as
''income to which this section applies''
and on other UK-source income in respect of which it is not liable to corporation tax.
I tabled an amendment to probe the position, because it is not clear to me why, on calculating the tax on income falling within paragraph (b)—other UK-source income in respect of which a non-resident is not liable to corporation tax—one has to disregard relief under double tax treaty as required by subsection (1)(a)(ii). There is probably a sound technical explanation, but it escapes me, so I look forward to hearing what the Paymaster General has to say.
I am grateful to the hon. Gentleman for tabling this probing amendment to tease out the precise interactions between the clauses that follow on from clause 147. The amendment would upset the existing basis of computing the limit of income tax on foreign companies from investments in the UK other than property and from any trading in the UK through a broker or investment manager. At present, the maximum such foreign companies can pay is the tax, if any, deducted at source.
The clause is a consequential adjustment to replicate exactly the effect of section 128 of the Finance Act 1995 on foreign companies. It is necessary following the change from ''branch or agency'' to ''permanent establishment'' that is introduced by clause 147.
The subsection that the amendment seeks to leave out does not prevent double taxation relief from being claimed. The position regarding such relief remains exactly as it was, and the clause limits the income tax chargeable before double taxation relief, as was previously the case. The double taxation relief would be given in any assessment, subject to the usual rules. That ensures that the UK income tax liability of a non-resident company is properly aligned to the amount due in accordance with any relevant tax treaty.
I hope that the hon. Gentleman will accept that explanation. He may feel that he wants to study the issues a little more, but I hope that he is reassured that the clause is, as I said, a consequential adjustment to replicate exactly the effect of section 128 of the Finance Act 1995 on foreign companies.
I am grateful to the Paymaster General for that clear explanation, which demonstrates an internal consistency in the light of clause 147. Therefore, as I indicated that this was a probing amendment, and as I am satisfied with the explanation, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 150 ordered to stand part of the Bill.