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Double Taxation Relief (Denmark)

Volume 477: debated on Tuesday 4 July 1950

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Motion made, and Question proposed,

That an humble Address be presented to His Majesty, praying that, on the ratification by the Government of the Kingdom of Denmark of the Convention set out in the draft of an Order in Council entitled the Double Taxation Relief.(Taxes on Income) (Denmark) Order, 1950, a copy of which was laid before this House on 8th May, an Order may be made in the form of that Draft.—[Mr. Jay.]

11.50 p.m.

Surely we are going to have some explanation of this Order from the Treasury?

This Motion, as is clear I think, relates to a double taxation convention with Denmark affecting taxes on income. It follows the general pattern of double taxation agreements with the United States, the Dominions, the Colonies, and so forth. It will cover relief for double taxation as between the United Kingdom on the one hand and Denmark on the other, and it is, of course, quite independent of the concessions for unilateral taxation relief which were included in the Finance Bill. It follows the broad pattern of other double taxation relief provisions, and after being approved by the House will require ratification before the Order is actually made.

I am extremely disappointed with what has been said because this Order raises a very large number of points to which I thought the hon. Gentleman should have given some answer. In Article II of the Agreement it is agreed, in relation to a subsequent Article, that this applies to people resident in the territory concerned for 183 days. The first question I want to ask is whether that standard is applicable to people resident, for instance, in the Channel Islands where, as I understand it, a completely different standard is taken? How is the hon. Gentleman going to be certain that he can work a term like that when he has other standards already set?

May I ask him to consider Article II (3) of this Convention. There he will see that any term not defined shall have application according to the law of the territory in which the term may be used. If he looks at Article II he will see that very few terms are defined. Possibly this becomes worse if he considers Article I (2), which says that the present Convention shall also apply to any other tax of a substantially similar character. It seems to me that if the hon. Gentleman is going to adopt these two criteria he is laying himself open to a great deal of muddle, and possibly to argument between the two parties as to what is substantially the same tax, and what is the definition. That is not covered by his own narrow rules, as set out in Article II.

May I also ask about Article II (k), where a definition is set out of a permanent establishment. There it says:
"when used with respect to an enterprise of one of the territories, means a branch, management, factory, or other fixed place of business."
Then there are three categories of exceptions.
"An enterprise of one of the territories shall not be deemed to have a permanent establishment in the other territory merely because it carries on business dealings in that other territory through a bona fide broker or general commission agent acting in the ordinary course of his business as such."
The Covenant makes a further modification by saying:
"The fact that an enterprise of one of the territories maintains in the other territory a fixed place of business exclusively for the purchase of goods or merchandise shall not of itself constitute that fixed place of business a permanent establishment of the enterprise."
The third exception says:
"The fact that a company which is a resident of one of the territories has a subsidiary company which is a resident of the other territory … shall not, of itself, constitute that subsidiary company a permanent establishment of its parent company."
I should like to know what, when these three exceptions are taken into account, is a permanent place of business. These exceptions make it impossible for anyone to have a permanent place of business in the other territory.

Then, in Article III (3) there is an "arm's length" clause which says:
"Where an enterprise of one of the territories carries on a trade or business in the other territory …"
and so on, it shall be viewed between the two as operations "at arm's length." That is a term which I understand is well-known in business; but will the hon. Gentleman tell us the definition of "arm's length" as it applies in this Article? It seems to me a loose and unfortunate term to use when dealing with taxation points.

In Article V of this document, it says that all profits which are paid to a resident in Denmark shall not be subjected to the distributed Profits Tax. What does this mean in loss of revenue to this country, particularly when the hon. Gentleman thinks of the concession which has been granted in exchange by Denmark, which, as I understand it, is that the rate of tax shall not exceed 5 per cent. above what the Danes normally charge. What is this extraordinary tax? It is called "udbytterate" and perhaps the hon. Gentleman will tell me what it means. I should love to know what it is and the effect it has on revenue coming from Denmark to this country. [Interruption.] Here is a document presented to the House by the Financial Secretary, who has given us merely four sentences: I am trying to ask a number of fairly serious questions.

On Article VI, can the hon. Gentleman tell the House why shipping and aircraft have been exempt from all the provisions of this Agreement? On Article VII, under which Danish residents are exempt from Surtax, what is that going to cost the Revenue? What is the effect of the 5 per cent. allowance that the Danes are to take off in exchange? What is the net increase or decrease in revenue we may expect? I come to Article X and ask the Financial Secretary whether he is satisfied that this definition of "permanent establishment" is sufficient to cover the requirements of the Order? On Article XVIII, which says that tax information will be exchanged between the two high contracting parties except in so far as it may disclose any business secret or trade process, would the right hon. Gentleman give an assurance that where the disclosure of a trade secret may conflict with the disclosure of information necessary for taxation, it would be the trade secret that would be the first consideration of the Government and not the disclosure of tax information? I hope I may have an answer if not to all these questions, at least to a few of them.

12.8 a.m.

The whole House will be grateful to the hon. and gallant Member for New Forest (Colonel Crosthwaite-Eyre) for the series of searching questions he has put to the Financial Secretary, who I am glad to see has been reinforced on the Front Bench by the Minister for Economic Affairs. I trust we may have some answer to these questions. I feel we are hardly being treated with courtesy when the Financial Secretary comes and gives us only the brief and unsatisfactory explanation which he has done. I always thought the purpose of the Labour Government in recruiting Ministers from the products of the public schools was that the House would receive more satisfactory information, but I am bound to say I think it might have been a good idea if the answers front the Government were now left in the hands of the trade union members who are being excluded from the Government. Then we might get better answers.

12.10 a.m.

I am not sure I can recall every one of the hon. and gallant Gentleman's questions, but I shall try to answer them, and if I omit any, I shall take steps to let him know the full answers later on. The hon. and gallant Gentleman inquired whether the period of 183 days was a standard period in these cases. I understand that it is and that in circumstances similar to this it has not been found to give rise to any great difficulties. Secondly, he asked why it was that certain terms were defined and then it was laid down that where terms were not defined they would be taken to mean whatever they would mean in the relevant country. I think that is the most natural way of meeting this problem. Surely it is reasonable to define terms where we can define them and where we cannot and the circumstances cannot be foreseen, to leave them to be interpreted in the light of the circumstances. I am not sure what other proposal the hon. and gallant Gentleman would make.

The right hon. Gentleman will remember I made a particular point on Article I, paragraph 2, which says it may be necessary that substantially similar taxes should be included. I think this rather vague definition should cover subsequent developments.

I am satisfied that that has been found satisfactory in other cases of this kind. The hon. and gallant Gentleman also asked about the phrase "arm's length" which appears in Article III, paragraph 3. I agree with him that, on the face of it, it appears a somewhat loose phrase, but I gather that it has a recognised legal connotation and is found to be sufficiently intelligible in cases of this kind. He next asked about the loss of United Kingdom taxation on distributed profits which would result from the exemption given here. I cannot give him the exact figure, but it certainly would not be large. When one reflects that the total loss which we shall suffer by the general unilateral concession is something like £15,000,000, clearly a concession of this kind affecting Denmark only could only be a fraction of that sum. The hon. and gallant Gentleman next inquired about the exemption of ships and aircraft. It is normal in any double taxation agreements to deal separately with ships and aircraft and that is why there is an exemption here. I think that covers most of the points made, but if not, if the hon. and gallant Gentleman will let me know, I will give him the answers.

Question put, and agreed to.


"That an humble Address be presented to His Majesty, praying that, on the ratification by the Government of the Kingdom of Denmark of the Convention set out in the draft of an Order in Council entitled the Double Taxation Relief (Taxes on Income) (Denmark) Order, 1950, a copy of which was laid before this House on 8th May, an Order may be made in the form of that Draft."

To be presented by Privy Councillors or Members of His Majesty's Household.