Clause 33.—(Transitory Provisions For Double Taxation Agreements Having Retrospective Effect.)
Mrs. Margaret Thatcher (Finchley)
I beg to move Amendment No. 25, in page 38, line 43, to leave out:
“concerning interest or royalties” and insert “in respect of interest or royalties which have already been allowed against income tax and profits tax” .
The Amendment concerns a discussion which we had in Committee on what was then Clause 31 and is now Clause 33. Niall MacDermotThe Financial Secretary will remember that we had a good deal of difficulty in construing the purpose of that Clause from what it said. The hon. and learned Gentleman gave quite an explanation, which consisted of saying, first, that it was an enabling Clause and implying, secondly, that it could not be very damaging because any agreement brought before the House under the Clause would have first to have been agreed with another country as well as our own and that that would limit its operation.
We should always look carefully at a Clause which confers enabling powers on any Government. We want to see precisely what we are enabling that Government to do. The Amendment is one means of narrowing down those powers to achieve exactly what the Financial Secretary said it was meant to achieve, and no more. [column 1495]
There is no reference in the Clause to the Swiss Double Taxation Agreement. One would say, therefore, that the Clause could go a good deal wider than the new protocol which has recently been signed. The only limitations in the Clause are three. First, any agreement which is brought before the House of Commons must be made before 1st January, 1968; secondly, the agreement can only withdraw relief from Corporation Tax; and, thirdly, it must be one which concerns interest or royalties.
That leads us to ask a number of questions of the Financial Secretary about the powers under the Clause and under the Amendment. First, will he tell the House whether he has it in mind to bring any other double taxation agreements before the House before 1st January, 1968, withdrawing relief retrospectively? As the hon. and learned Gentleman has not referred to the Swiss Agreement only, it is possible that he may have it is mind to vary other agreements before 1st January, 1968.
Secondly, will the Financial Secretary give an assurance that he will not use his enabling powers under the Clause to require a taxpayer to repay tax for which relief had previously been granted? If the Clause refers only to the Swiss Agreement, it will not be a question of repaying tax, because the first payment of Corporation Tax will not be due until 1st January, 1967. There is, therefore, no question of clawing back tax which has already been paid.
My third question is whether the hon. and learned Gentleman can give us an assurance that these powers will be invoked only where there has clearly been a mistake and relief was never intended in the first place. I refer to a mistake not in the amount of relief but as to the terms upon which it was granted.
The Amendment is a little more specific than the Clause. It attempts to replace the phrase
“concerning interest or royalties”
with one which narrows that phrase and states:
“in respect of interest or royalties which have already been allowed against income tax and profits tax” .
That is merely one attempt to try to narrow the Clause to do what the Financial Secretary said he wanted it to do. [column 1496]
I shall be grateful if the hon. and learned Gentleman will answer one or two of my questions so that before we part finally with the Clause and the Amendment, we may have certain undertakings from him.
In moving the Amendment, the hon. Lady the Member for Finchley (Mrs. Thatcher) is exercising a proper traditional function of the House of Commons in scrutinising closely any demand for enabling powers. I share the hon. Lady's concern about it.
As I explained when we discussed this matter in Committee, all that we are seeking to do here is to take powers for the House, to enable the House to consider the provisions which, if approved, would have the effect of withdrawing certain reliefs retrospectively and to enable them to be considered when we look at the protocol to the Swiss Agreement. That is the sole purpose for which the Clause was drawn.
The purpose of the Amendment, as the hon. Lady has made clear, is to narrow the terms in which the Clause is drawn and to limit it more closely to that specific Agreement or agreements strictly parallel with it.
In principle, I see no objection to limiting the Clause in the sort of way that the hon. Lady suggests, but the Amendment would not succeed in achieving the right result. First, although this is not the main difficulty, there is the fact that, quite understandably, the Amendment is drawn in such terms that it is limited to cases where the retrospective withdrawal of the provision in the Swiss Agreement entitling a payer of interest or royalties to a deduction for Corporation Tax purposes was made necessary because payment of interest or royalties made prior to 6th April would otherwise have got effective relief both against Income Tax for the year of assessment in which the payment was made and also against Corporation Tax charged on the profits arising during that year.
One rather exceptional case is covered by the protocol where the provision will also apply to payments made after 6th April. I did not go into this in detail in Committee, but when we look at the protocol it will be seen. The matter is a little involved and perhaps hon. Members [column 1497]will not wish me to take up the time of the House in explaining it.
The effect of the Amendment would be that we would not be able to consider those provisions in the protocol which we have provisionally agreed with the Swiss. Secondly and more seriously, however, in its reference to Profits Tax the wording of the Amendment would frustrate the whole exercise. Profits charged to Corporation Tax are not also charged to Profits Tax, and, therefore, there would be no question of the interest or royalties which are to be denied Corporation Tax relief having, in the words of the Amendment, been allowed against Profits Tax.
There is also a drafting error in referring to interest or royalties which have already been allowed against Income Tax. That would be more apt a reference if interest were allowed as a deduction from income for Income Tax purposes.
Those are somewhat technical arguments, but they are valid ones for rejecting the Amendment.
When I put the Amendment down on the Notice Paper, I hoped that the Financial Secretary would see what I was trying to get at, and put the Amendment in order if he is prepared to accept it in spirit. I am a little concerned about the breadth of the powers.
I am coming to the breadth of the powers. I do not think that the anxieties which the hon. Lady has expressed are ones which need concern her or the House.
The Clause is already fairly narrowly drawn. In the first place it only applies in respect of interest and royalties. It is only in respect of them that it can authorise the retrospective withdrawal of relief, and then only if the withdrawal is in consequence of arrangements made pursuant to an Address presented to Her Majesty by the House before 1st January, 1968. That means that we are not taking some permanent power for the future.
The hon. Lady referred to my explanation in Committee that the consent of the other country must first be obtained. It would only be in unusual circumstances that another country would agree to consent to the retrospective withdrawal of a relief in this way. I explained in [column 1498]Committee briefly how those circumstances have arisen in one case. I do not think that it is something that is likely to arise often.
I was asked whether we have any other agreement or protocol in mind. The answer to that is no. We do not anticipate that we shall need the power in respect of any agreement other than the Swiss one. Equally, the question of clawing back any tax which has already been paid does not arise, and I do not envisage this being used except in comparable circumstances, if they arise, to the ones which gave rise to the Swiss agreement, where there clearly was a mistake which both countries recognised must be rectified.
In view of the Financial Secretary's reply, I beg leave of the House to withdraw the Amendment.
Amendment, by leave, withdrawn.