|Draft Double Taxation Relief (Taxes on Income) (Australia) Order 2003
Mr. Mark Prisk (Hertford and Stortford): This is the first time that I, like the Paymaster General, have been guided by you as Chairman, Mr. Beard, and I look forward to your firm and fair leadership over the next 90 minutes.
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I thank the Paymaster General for her remarks and for continuing the tradition of allowing officials from her Department to provide briefing to my staff. It is a very important part of a process that was begun under the Conservative Government.
My party welcomes the two draft orders. As the Paymaster General highlighted, the landmark of 100 double taxation treaties was reached under the Conservative Government. I am particularly pleased to be joined by my right hon. Friend the Member for Fylde (Mr. Jack) who was the Financial Secretary to the Treasury at the time. We applaud the principle of double taxation treaties because they reduce the barriers to travel and trade abroad for individuals and businesses. It is a vital part of the international trade network, providing an efficient, transparent and fair system that is in the interests of everybody—taxpayers and Governments.
In preparing for the sitting, I contacted the relevant chambers of commerce. The Australia-New Zealand joint chamber of commerce welcomed the treaty because, as the Paymaster General highlighted, it updates a 23-year-old agreement. I know from talking to some UK businesses that they welcome the introduction of the important full non-discrimination articles and the reduction of the rate of dividend holding tax to zero.
The British Chilean chamber of commerce is also pleased to welcome the agreement. There have been particularly strong representations from the copper mining industry, which the Paymaster General may wish to comment on. I am especially pleased to see that we have a distinguished expert on these matters in Committee. The hon. Member for Ealing, North (Mr. Pound) is known for plying his trade in Chilean affairs, and I am sure that he will wish to contribute later.
In respect of Australia and capital gains tax, will the Paymaster General explain the implications of the changes in the agreement? In particular, will she highlight how the new agreement improves payment and collection arrangements, which are of particular concern to business and industry? Will she explain further how the tax arrangements have changed for dual listed companies, and how they will operate? There are some ambiguities, and I would be helpful if she could put on record exactly how the arrangements will operate. Will she also clarify the Government's definition of a partnership? In the UK we have partnerships and limited liability partnerships. Are both included in the instrument and, if so, what implications will that have for businesses trading with Australia?
In article 6, the term ''usufruct'' is used. Obviously, more senior members of the Committee than I will be able to comment on its definition but, as I recall from reading the ''Oxford English Dictionary'' about 10 minutes ago, it is defined as the right to enjoy the use of another's property, short of the destruction or waste of its substance. I am sure that Members will wish to tease out the details of that definition, but I am at a loss as to the circumstances in which it applies in a
Column Number: 008double taxation treaty. Will the Paymaster General provide an example?
The treaty with Chile is welcome. The Paymaster General highlighted the important exchanges between our countries brought by trade and industry, and the treaty will strengthen our trading ties. In particular, I understand that the purpose of the treaty is to change the balance so it is shifted more towards residency-based tax rather than source-based tax. That will be of especial comfort to the mining industry.
In article 5, under the title ''Permanent Establishment'', why are agricultural properties and land excluded from the list? They are specifically included in the treaty with Australia and, as I recall, they were also included in the treaties with Taiwan, the USA and Canada that we have debated in the past. Is the omission intentional and if so, what is the thinking behind it? The Paymaster General said in her opening remarks that the treaty was signed back in the summer—in July. Is there any significance in the long delay before the matter was brought before the House? Do we need to be aware of any details that have commercial implications?
I congratulate the Government on both treaties and, with regard to the treaty with Chile, on securing a lower level of interest on the royalties—down from the Chilean standard of about 30 per cent. to 10 per cent. We welcome the treaties and look forward to the Paymaster General's reply.
Mr. John Burnett (Torridge and West Devon): This is the first time that I have been under your wise guidance, Mr. Beard, and I am sure that it will not be the last given the frequency with which I find myself doing Standing Committee work.
I thank the Paymaster General for arranging for me to have a briefing from the Inland Revenue international policy team. She is always as good as her word and she is unfailingly courteous. I am grateful to the team from the Inland Revenue for the time and help that they gave me in the comprehensive briefing that I received earlier this week. I congratulate the hon. Member for Hertford and Stortford, who remains in place notwithstanding the recent reshuffle.
As I have said in the numerous debates that I have attended on double taxation treaties, they are invariably welcome because they encourage international trade and should prevent double taxation. I understand that UK investors hold about £70 billion of assets and investments in Australia and getting on for about £2 billion in Chile. I understand further that wide consultations between the Inland Revenue, professional bodies and others have not elicited any substantial objections. It is clear that the treaties represent advances for UK investors and companies and that the Minister and her officials deserve credit for that.
I will deal with the Australian treaty first. It seems that there has been a laudable change of direction by the Australian Government and authorities. They have moved at least in part towards residents' state taxation—taxation where the owner of the income
Column Number: 009resides. That has been the philosophy pursued by successive UK Governments and it is certainly in our national interest. After the changes made by the Australian Government in their double taxation treaty arrangements with the United States, we now have a system wherein overall dividends, royalties and interest are taxed at a far lower rate than that which prevailed under the old treaty. That represents a considerable advance.
The position is not entirely reciprocal, as I am sure the Paymaster General will confirm. Although the treaty allows the UK to impose a withholding tax of 5 per cent. on dividends in certain circumstances, in effect we will not withhold tax on dividends whereas Australia will withhold tax of 5 per cent. Nevertheless, the position does represent an advance and it is welcome as such. It should be added that the fact that we do not withhold tax on dividends puts us in a strong position as we endeavour to negotiate away as many inhibitions to foreign investment and trade as possible. In other circumstances, for individuals and companies, withholding tax on dividends will be about 15 per cent. in Australia and ours will be about zero. Rents are taxed at source with the appropriate credit.
I welcome the inclusion, to which the Paymaster General referred, of the non-discrimination article 25, which is based on the OECD model. It provides that neither country shall impose discriminatory taxes on the nationals, permanent establishments and enterprises of the other. I note the sensible inclusion of anti-avoidance measures such as those contained in paragraph 7 under article 10, paragraph 9 under article 11 and paragraph 7 under article 12 to avoid treaty shopping. It is worth noting that withholding tax of zero on certain bank interest as well as Government debt will no doubt be welcomed by the major banks. Withholding tax on other interest does not exceed 10 per cent. either way. In addition, withholding tax on royalties is reduced from 10 per cent. to 5 per cent.
It is a shame that there has not been greater movement by the Australian authorities on capital gains tax, to which the hon. Member for Hertford and Stortford referred. Nevertheless, ships and aircraft engaged in international travel will be taxed in the country of the operator only. In respect of other assets, the Australian Government have reserved their right to tax gains arising there. I am sure that the Paymaster General will confirm for the record that full credit will be given for all capital gains tax withheld. Those welcome changes are an advance.
The Chile treaty also contains some successes. Withholding tax on interest has been reduced from 35 per cent. to 15 per cent.; withholding tax on royalties has been reduced from 30 per cent. to 10 per cent.; and withholding tax on bank bonds is 5 per cent. either way between the UK and Chile. I know that the UK team would have preferred zero per cent. withholding tax, but the changes are a significant reduction for UK business nevertheless.
It is worth drawing the Committee's attention to the exchange of notes and the penultimate paragraph on page 14 of the Chile treaty. If the Chilean authorities negotiate lower terms with another country, those
Column Number: 010terms should accrue to the United Kingdom. It is a shame that the Australians would not agree to similar arrangements.
Article 17, which deals with pensions, of the Chile treaty will benefit UK workers in Chile, who will still get tax relief on their pension premiums within the UK prescribed limits; obviously, there are reciprocal arrangements for Chileans working in this country. I have been informed that the Australians would not agree similar arrangements because their tax relief structure for pensions is totally different.
I shall make one or two general points. On the exchange of information articles in both treaties, will the Paymaster General confirm that information can be exchanged between competent authorities only, which means tax authorities? Will she also confirm that information will be exchanged only in relation to the taxes covered by the treaties and that there is strict guidance on the exchange of information.
I note that the articles in both treaties contain safeguards, but I hope that the Paymaster General can confirm that only about one dozen people—they should be senior people in the Inland Revenue—can sanction exchanges of information. I appreciate that such matters require a difficult balance between the rights of individuals and companies to confidentiality on the one hand and the importance of tracking down and dealing with criminals, terrorists and tax evaders on the other. Will the Paymaster General confirm that tax credits can be set against all mainstream taxable income and that any unrelieved tax credits can be carried forward?
On unilateral relief, although the treaties are comprehensive, there could be taxable events that have not been foreseen or provided for in the treaties. By that, I do not mean an inception of a new tax in either country. In those circumstances, I hope that unilateral relief will still be available. As I said, I welcome the treaties and pay tribute to the Paymaster General and her officials for the advances made in both of them.
|©Parliamentary copyright 2003||Prepared 13 November 2003|