Eighth Standing Committee
on Delegated Legislation
Thursday 13 November 2003
[Mr. Nigel Beard in the Chair]
Draft Double Taxation Relief
(Taxes on Income) (Australia)
Draft Double Taxation Relief
(Taxes on Income) (Chile)
The Paymaster General (Dawn Primarolo): I beg to move,
That the Committee has considered the draft Double Taxation Relief (Taxes on Income) (Australia) Order 2003.
The Chairman: With this it will be convenient to consider the draft Double Taxation Relief (Taxes on Income) (Chile) Order 2003.
Dawn Primarolo: This may be the first occasion on which you, Mr. Beard, have chaired a Committee on double taxation relief. I look forward to your chairmanship of this Committee today and perhaps your chairmanship of future Committees on double taxation orders.
I am pleased to introduce the two double taxation orders to the Committee. Each deals with a new comprehensive double taxation convention. Double taxation conventions are welcomed by the business community as an aid to international trade and investment. Their main aim is to relieve double taxation where income arising in one country flows to a resident of another country and would otherwise be taxed in both countries. To achieve that, each country agrees to limit its taxing rights and to give credit for the other country's tax. Tax conventions also help businesses to plan their investments by providing certainty about their tax treatment. They provide for exchange of information between the two tax authorities and for consultation between the tax authorities to try to resolve difficult cases by mutual agreement.
We are committed to maintaining and developing the United Kingdom's network of double taxation conventions, as did the Conservative Government who preceded us. We have continued their endeavours to ensure that we have an extensive network of double taxation treaties. We currently have more than 100 bilateral tax conventions, which is one of the largest networks—if not the largest network—of double taxation conventions in the world. So far this year, we have made good progress in negotiations on new conventions with the Hong Kong special administrative region, Saudi Arabia, Iran, Croatia, and Serbia and Montenegro. We have revised our existing convention with New Zealand, held talks on revising our existing conventions with Luxembourg and the Netherlands, and expect to hold talks shortly on revising the existing conventions with Thailand and
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Greece. We also expect to hold talks shortly with Bahrain. Earlier this year, in Committee, we approved protocols with Canada and Mauritius, which have now completed their parliamentary stages in the UK.
The convention with the Government of Australia was signed in Canberra on 21 August 2003 by Sir Alastair Goodlad, our high commissioner to Australia, and Peter Costello, the Australian Treasurer. It is a new comprehensive double taxation convention, covering all categories of income and gains. It replaces an existing agreement that came into effect in 1967 and was last amended in 1980, and takes account of changes in the tax systems in the two countries and developments in best international practice since then.
Australia is the world's 16th largest economy and one of the fastest growing: growth in gross domestic product has averaged 3.6 per cent. over the past decade. The United Kingdom and Australia share significant trading and investment links. With extensive UK interests, Australia remains an important market for the UK. It is the 14th largest market for goods, and the third largest in the region after Japan and Hong Kong. The UK is the second largest overall foreign investor in Australia, accounting for 25 per cent. of all foreign investment, with foreign direct investment worth £70 billion a year. Australia is the fourth biggest destination for UK investment, after the USA, the Netherlands and France. UK investing companies include British Airways, BP, Shell and P&O. Australia is the seventh largest foreign direct investor in the UK.
The UK and Australia also, of course, enjoy a long-standing close relationship outside the economic field. Political, defence and intelligence relationships are excellent, and in the sectors of law, education, medicine and science and technology, the two countries share know-how and have similar institutions. Bilateral ties are exemplified by the double taxation agreement and mutual access to health services. There is a long tradition of co-operation on international affairs.
Those strong, growing links are underpinned by close personal ties between Britons and Australians. Some 1.2 million Australians were born in the United Kingdom, and about 10,000 British citizens migrate to Australia each year. More than 520,000 Britons obtain visitor visas—not all for the rugby world cup.
The convention covers the usual types of income, such as property rents, business profits, income from international transport, dividends, interest, royalties, capital gains, employment income, pensions and annuities. It largely follows the principles enshrined in the Organisation for Economic Co-operation and Development model, and the terms that the UK has secured are as good as those that Australia has agreed with other countries.
In some fields, such as the treatment of dividends, interest and royalties, the convention marks a major shift in treaty policy by Australia in favour of lower rates of source-country taxation—that is, taxation by the country in which the income arises. That will greatly encourage investment flows. The convention is
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the first in which Australia has accepted a full non-discrimination article.
I am pleased that we are modernising our convention and am confident that it will provide, for many years, a stable framework in which trade and investment between the United Kingdom and Australia can continue to flourish.
Mr. Stephen Pound (Ealing, North): Like many people, I am intrigued by article 16, in particular the definition of sportspersons and musicians. I entirely support my right hon. Friend's paean of praise for our antipodean cousins, despite Kylie Minogue, Mark Viduka and Harry Kewell, but how do we define a sportsperson? Is it the FIFA description, or a locally agreed one? With the exception of Mickey Conroy, once of Clydebank and Fulham, very few UK sportsmen or sportswomen are plying their honest trade in Australia, but an enormous number of Australians are doing that in this country. What definition of sportsperson is used? Is it a definition for taxation purposes agreed by the Revenue, or is it similar to that which applies in Europe, where people must have played for their country?
I would understand it if my hon. Friend needs some time to answer that, or wants to drop me a note. I ask the question simply as a point of general interest, rather than a specific issue at this stage.
Dawn Primarolo: There is not an absolute definition, but the facts would be followed. The UK would consider whether, in the example that my hon. Friend gives, the person concerned was plying their trade as a sportsperson and whether that was recognised in our tax system. We have had this discussion before in Committee; the question was raised by the hon. Member for Hertford and Stortford (Mr. Prisk). There is no absolute definition that it is possible to follow. Both countries will follow their taxation systems, using the facts of the case and the nature of the employment.
I am sure that my hon. Friend will recognise that, as I was introducing the Australia convention, article 16 did not immediately leap out at me. I will ensure that the information that I have given to my hon. Friend is correct and I will follow it up in writing if it is not, but I think that I have given the correct answer.
I turn to Chile. If my hon. Friend could perhaps give me written advance notice of any points on this order during the next few seconds, that would be extremely helpful. The double taxation convention with Chile was signed in London on 12 July 2003 by Chile's Minister of Finance, Nicolas Eyzaguirre—I hope that I pronounced that right—and by my right hon. Friend the Chief Secretary to the Treasury. It is our first such convention with Chile, but not our first bilateral agreement. It is an important partner to the investment promotion and protection agreement between our two countries, which was ratified in April 1997.
Chile has made a very successful transition from dictatorship to democracy, and is widely seen as one of the strongest emerging market economies, with a record of high growth. Spurred on by an early commitment to market-orientated reform and
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international openness, Chile was the first Latin American country to reduce tariffs, liberalise investment and open its doors to foreign capital. Politically, the UK and Chile have a shared interest in free trade, protecting the environment, opposing international terrorism and fighting the illegal trade in drugs.
Chile is the UK's fourth largest export market in south America after Brazil, Argentina and Venezuela. In 2002, exports of goods from Britain to Chile were worth £116 million. Principal such exports include specialised machinery, telecommunications equipment and beverages, notably Scotch whisky.
Mr. Pound: Why is my right hon. Friend looking at me?
Dawn Primarolo: In case my hon. Friend wishes to intervene at this point. Other principal exports are chemicals, electrical machinery, power generation equipment and road vehicles. The UK is one of Chile's largest markets in the European Union. In 2002, Chilean exports to the UK were worth £477.9 million. It is normal for the UK to have a trade deficit with Chile, because of the high volume of Chilean copper exports. Other Chilean exports to the UK are minerals, fruit and vegetables, wood pulp, fish meal and, of course, wine. The UK is the fourth largest foreign direct investor in Chile, with investments worth £1.8 billion at the end of 2001.
Again, the convention covers the usual types of income, such as property rents, business profits, international transport, dividends, interest, royalties, capital gains, employment income, pensions and annuities. Like the convention with Australia, it contains all the provisions against tax treaty abuse that are a feature of recent UK conventions. It largely follows the principles enshrined in the OECD model.
In common with many developing and emerging economies, Chile favours a larger degree of source-state taxation than would be normal between OECD countries. That largely reflects the balance of the capital and income flows between Chile and the UK. To move further in the direction of a standard OECD convention would, in Chile's eyes, mean having to give up too much tax revenue. In this convention, however, the UK has secured from Chile significant benefits for investors, exporters, providers of services and others, and the terms of the agreement are at least as good as those that Chile has agreed with other countries.
I am confident that the conventions will be welcomed by British business, aid competitiveness and stimulate greater investment and trade between the UK and Australia, and between the UK and Chile. I commend the orders to the Committee. I shall be happy to respond verbally or in writing to any members of the Committee who have further questions about the provisions.