Ninth Standing Committee
on Delegated Legislation
Thursday 28 November 2002
[Mr. David Chidgey in the Chair]
Draft Double Taxation Relief
(Taxes on Income) (South Africa)
The Paymaster General (Dawn Primarolo): I beg to move,
That the Committee has considered the draft Double Taxation Relief (Taxes on Income) (South Africa) Order 2002.
The Chairman: With this it will be convenient to consider the draft Double Taxation Relief (Taxes on Income) (Taiwan) Order 2002.
Dawn Primarolo: I welcome you to the Chair, Mr. Chidgey. I know that you will keep us firmly in order, and it is a pleasure to see you in the Chair again. I also welcome the hon. Member for Hereford and Stortford—
Mr. Mark Prisk (Hertford and Stortford): Hertford and Stortford.
Dawn Primarolo: It would help if I got the hon. Gentleman's constituency right. This is his first appearance on the Front Bench for Her Majesty's official Opposition, and I congratulate him on his promotion. I look forward to what I know will be good debates, not only on these measures, but on the many and varied pieces of legislation in the Finance Bill. I hope that the hon. Gentleman looks as healthy, enthusiastic and bouncy at the end of proceedings on that Bill as he does today.
I am pleased to introduce the orders. Both deal with a new comprehensive double taxation agreement. The business community welcomes such agreements as an aid to international trade and investment. Their main aim is to relieve double taxation where income arising in one territory flows to a resident of the other territory and would otherwise be taxable in both. To achieve that, each territory agrees to limit its taxing rights and give credit for the other territory's tax.
Tax agreements also help businesses to plan their investment by providing certainty, as best we can, about their tax treatment. They provide for an exchange of information between the two tax authorities, and for consultation between them to try to resolve difficult cases by mutual agreement.
We are committed to maintaining and developing the United Kingdom's network of double taxation agreements. We have more than 100 bilateral tax agreements, which is one of the largest networks of double taxation agreements in the world. The right hon. Member for Fylde (Mr. Jack) was Financial Secretary under a previous Government, and I know that he will agree with me, as he did then, that for both sides of the House, ensuring double taxation treaties is vital to the British economy.
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We shall shortly begin our annual consultation round, in which we invite all interested parties to let us know about their priorities for new and updated agreements. When we have their views, we shall take them into account in planning our programme. Both Conservative and Labour Governments have deployed that process.
I shall begin with the new agreement relating to Taiwan, which was signed in London on 8 April 2002 by the heads of the British trade and cultural office in Taipei and the Taipei representative office in the UK.
Mr. Michael Jack (Fylde): I thank the Paymaster General for her kind words. Are the contracting parties to the agreement that she has to talk about compatible with section 788 of the Taxes Act 1988?
Dawn Primarolo: I was coming to that next. It is an important point with regard to this agreement. The right hon. Gentleman is an avid reader of the Finance Acts, which is unfortunate for me when he questions me. If he will allow me, I will cover that as I explain the relationship between the two representative offices.
The agreement is our first on double taxation in relation to Taiwan, and also the first of our double taxation agreements to be signed by the heads of unofficial representative offices. It was not possible for it to be signed by a Minister on behalf of the Government, because the Taiwanese Government are not recognised by Her Majesty's Government. The agreement is not made between Governments, so our enabling legislation has had to be amended to pave the way for legal effect to be given to the agreement in the United Kingdom. The necessary amendments were made in section 88 of the Finance Act 2002.
Pressure has been building for some time from the British business community in Taiwan for the negotiation of an agreement in relation to Taiwan. Several major British companies operate there, and some specific tax problems needed to be addressed in such an agreement. Business generally prefers the certainty of tax treatment that such agreements confer. Furthermore, a double taxation agreement will help secure the UK's position as the preferred location for the Taiwanese investment in Europe.
The unofficial nature of relations with Taiwan gives the agreement a special significance that goes beyond the mere reduction of tax burdens, important as that is. Although we do not recognise Taiwan as an independent state and have no formal diplomatic relations with it, it is one of the UK's most important economic partners in Asia. It is the Government's policy further to develop our economic ties with Taiwan in a variety of areas in which we have mutual interests, such as industrial and environmental co-operation, financial sector exchanges, cultural education and science and technology. The agreement represents the introduction of a more solid underpinning of the economic relationship that we have had until now.
United Kingdom exports to Taiwan—goods and services—were £1.28 billion in 2000, an increase of about 17 per cent. on the figure for 1999. Imports from Taiwan in 2000—again, goods and services—reached £3.7 billion. Taiwan is a major inward Asian investor.
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About 70 per cent. of all Taiwanese manufacturing investment in Europe is in the UK. The companies are almost exclusively IT-related, although there is growing interest in biotechnology. Invest UK has an office in the British trade and cultural office in Taipei, and several regional development agencies also have offices in Taiwan. Many UK companies have invested successfully there.
The agreement covers such types of income as property rents, business profits, shipping and air transport, dividends, interest, royalties, capital gains, income from independent personal services, employment income, pensions and annuities. It follows the principles enshrined in the model double taxation convention deployed by the Organisation for Economic Co-operation and Development. The terms that the UK has secured overall are at least as good as those that Taiwan has agreed with similar countries.
Mr. John Burnett (Torridge and West Devon): I have had a quick look at the Taiwanese order. Is the Paymaster General able to speak about withholding tax, as far as Taiwan is concerned?
Dawn Primarolo: I am. Perhaps the hon. Gentleman will forgive me if I note now that he is interested in withholding—I think that the hon. Member for Hertford and Stortford (Mr. Prisk) might be as well—and return to it in more detail when I respond to questions. In my opening comments, I want briefly to introduce the orders.
I am pleased that we are making this very worthwhile extension of our tax agreement network now, and am confident that the agreement will provide, for many years, a stable framework in which trade and investment between the United Kingdom and Taiwan can flourish. In responding to questions later, I will more than happily pick up on withholding tax and any other issues relating to Taiwan in which Committee members are particularly interested.
Mr. David Wilshire (Spelthorne): Before I ask the Paymaster General my question, I must say that I am not clear in my mind whether my declarable interest in Taiwan still exists. I was in receipt of hospitality from Taiwan, but I think that it was more than a year ago. In case it was not, I place it on the record that I did have a declarable interest, if I do not now.
Because my Whip's duties will take me elsewhere in a moment, will the Paymaster General accept now my thanks for doing something that, as someone who has known something about Taiwan for several years, I think is very worthwhile and important? It is very significant that we are managing to do such a deal with an unofficial Government. If this were a wider debate, I would argue that we should accept them as a proper Government.
Dawn Primarolo: I am very grateful for the hon. Gentleman's comments. I acknowledge, as does he, the importance of this agreement to trade, as I have tried to explain to the Committee. I congratulate Her Majesty's negotiators from the Inland Revenue and the Foreign and Commonwealth Office on ensuring that the agreement could be concluded, given the circumstances.
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I now turn to the convention with the Government of the Republic of South Africa, which was signed in London on behalf of the Government on 4 July 2002 by my right hon. Friend the Chancellor of the Exchequer. I will take it as read that the hon. Member for Torridge and West Devon (Mr. Burnett) now has a similar question on the South African convention with regard to withholding. Can he confirm that?
Mr. Burnett: I think that there is rather greater understanding of the South African situation on withholding tax, but I very much look forward to hearing the Paymaster General enlighten us all on withholding tax in respect of both orders.
Dawn Primarolo: That serves me right for trying to anticipate the hon. Gentleman, in the friendly and collegiate forum of this Committee, as we seek to agree to the two double taxation agreements.
The South African convention is a new comprehensive double taxation convention, covering all categories of income and gains. It replaces an existing agreement, which came into effect in 1968, and takes account of changes in the tax systems in the two countries and developments in best international practice that have taken place since that time.
The UK and South Africa share significant trading and investment links. South Africa acts as a gateway to the southern African market, with the majority of imports into the region being manufactured in or transported via South Africa. The United Kingdom is one of South Africa's largest trading partners and was its largest market for goods in 2000. The United Kingdom is the third largest supplier to South Africa with a two-way trade in goods and services of about £6 billion in value. With assets worth an estimated £12 billion, the United Kingdom is the largest foreign investor in South Africa. South Africa offers a wide range of opportunities for United Kingdom enterprise, including restructuring of ports, railways, power and water sectors, consultancy, telecom, IT, electronics, the environment and water, health, tourism, creative industries and agriculture.
The convention also covers such types of income as property rents, business profits, international transport, dividends, interest, royalties, capital gains, employment income, pensions and annuities. It, too, follows the principles enshrined in the OECD model and, again, the terms that the UK has secured are overall at least as good as those that South Africa has agreed with other similar countries.
I am pleased that we are modernising our convention and I am confident that it will provide, for many years, a stable framework in which trade and investment between the United Kingdom and South Africa can flourish.
I am confident that the conclusion of the agreements will be welcomed by British business and will aid competitiveness and stimulate greater investment and trade between the United Kingdom and Taiwan and between the United Kingdom and South Africa.
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I commend the orders to the Committee. As I said, I shall be more than happy to respond to questions that members of the Committee have on any of the provisions in the agreements.