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9.15 pm

I am horrified because I gain the impression that the Government are asking for the power to apply different rules to different territories. There is no definition of how the territories will be selected, and there is no definition of what rules will apply. The Minister is aware that I am extremely concerned, for example, about what the Government are doing in relation to the Channel Islands. The policy that they seem to be adopting towards one of the Channel Islands seems to differ from the policy that they are adopting towards the others.

What worries me in particular is the fact that the Government are asking for blanket powers to bring in regulations that will apply to any place that they want, without ensuring that the same rules are applied to all territories. That strikes me as very worrying and not in the traditions of the House—

The Temporary Chairman (Mr. Roger Gale): Order. With respect to the hon. Gentleman, I think that he will find that he is speaking to clause 88, not to the clause currently under discussion.

Sir Teddy Taylor: I would not think of taking up the time of the Committee. I was giving an example to illustrate my simple question about the reason for substituting the words

in clause 87 for the words

I shall, of course, say a few words on clause 88 if I have the delightful opportunity of catching your eye, Mr. Gale, but I should like to know why the words are to be substituted and what the aim is.

Dawn Primarolo: The clause amends the legislation that enables double taxation agreements to be implemented. In particular, it removes the existing requirement that the agreement is "made with the government" of the other territory. The other territory is the country—the jurisdiction.

The hon. Member for Arundel and South Downs (Mr. Flight) asked whether we were confident that the proposed wording was correct. I am confidently advised that the wording is correct, but the hon. Gentleman is right: if it were not correct, we would not have the authority to enter into a double taxation treaty, for which the clause provides. I assume that the wording is right, because I have been advised that it is right.

The purpose of the change is to enable legal effect to be given to a double taxation agreement in relation to the territory of Taiwan. The agreement must be made between two representative offices—the British trade and cultural office in Taipei, and the Taipei representative office in London. It was formally signed in London by the heads of those offices on 8 April 2002. The agreement will be laid for consideration by the House at the earliest convenient opportunity after the passing of the Bill.

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The reason that we need to change the wording is specifically to enable us to have an agreement with Taiwan. Other countries have taken similar powers in order to do that. Australia, New Zealand and the Netherlands have all implemented double taxation agreements with Taiwan, which were made between their representative offices and the Taiwan representative office in each country. The change is necessary because Taiwan is part of the People's Republic of China. It is one of our most important trading partners in Asia, and a double taxation agreement will provide considerable benefits to British companies trading in Taiwan, and will also serve to encourage Taiwanese investment in the United Kingdom. It is necessary to make changes in order to retain the internationally recognised definition of "the Government", and to reach an agreement with the representatives of Taiwan.

Sir Teddy Taylor: Is the Paymaster General suggesting that Taiwan has no Government? My understanding is that it has a democratically elected Government, while the People's Republic of China does not. Why on earth is the Paymaster General removing the word "government"? Is she making a concession to the People's Republic of China and, if so, what is the purpose of that concession? What is wrong with the existing words, given that Taiwan has a splendid Government, who are democratically elected and respected throughout the civilised world?

Dawn Primarolo: I have already answered that question. To my knowledge, Taiwan is not recognised by any Government. Other Governments have double taxation treaties for precisely the reasons I have given. If the hon. Gentleman thinks that the rest of the world is wrong in terms of its diplomatic relations with that part of the world, he is entirely entitled to hold that view; but the international agreements require the reference to a Government to be changed to a reference to a representative office, so that the balance of agreements already in existence can be maintained and an agreement with Taiwan can be secured.

That is all that the clause does. It is what many other countries have done. It is a welcome arrangement, which adds to the double taxation agreements that this country already has—more than 100—thus facilitating international trade and, in particular, the operation of our companies in countries where we have such agreements.

Question put and agreed to.

Clause 87 ordered to stand part of the Bill.

Clause 88

Controlled Foreign Companies: Territorial Exclusions from s.748 Exemptions

Mr. Flight: I beg to move amendment No. 26, in page 63, line 14, at end insert—

'(6) A period of 6 months' notice shall be given prior to the laying of a statutory instrument, as provided for in subsection (5) above.'.

This is essentially a probing amendment. It is intended to establish whether the Government are willing to consider relaxing the measures in clause 88. Conservative Members are extremely uncomfortable with the clause

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and its background. For reasons connected with the national interest, we are particularly unhappy about the fact that it makes Britain a marginally less attractive place for a multinational company to have its headquarters. It introduces a degree of uncertainty to the international structure of such companies.

Clause 88 gives the Treasury an arbitrary power to designate territories where CFC exemptions for UK-based groups will be removed. Although I duly note that an affirmative resolution of the House is required, self-evidently the present Government have a majority that will make that little more than a formality.

Let me say something about the background to the clause. I do not know why, but there was some misreporting of it in the press. It was said that the clause related to a disagreement—shall I say?—between the Paymaster General and Jersey on the savings directive, which threatened the deal allowing it to be an alternative to a common European Union withholding tax. Whether there is a disagreement is debateable, but the matter relates to the Primarolo report on EU unfair tax competition and not to the savings directive.

The Committee may remember that the Primarolo report identified in EU member states, various British dependencies and elsewhere, what it considered instances of unfair tax competition that resulted, among other things, in particular locations getting business because of specific tax incentives. At the outset, EU members considered applying their code and principles to other key parts of the world—the United States and Switzerland in particular—on the basis of the sensible argument that not bringing them in would merely drive capital away from the EU and places like the British dependencies. As I understand it, that developed slightly later into an attempt by EU member states to get a commitment that the same measures would be introduced in British dependent territories, even though they are not members of the EU. In relation to key third territories, the concept was to try to promote the adoption of equivalent measures. I think that there was a slight change from the original intentions in that regard.

As I understood it—I remember reading the report—the main offender was the Netherlands, which I think had 66 cases of allegedly unfair tax practices, while the British dependent territories of the Channel Islands and the Isle of Man had relatively few such cases. I recollect that the report stated that the UK would do its best to persuade its dependent territories to come into line with what was being introduced in the EU, but also made it clear the UK had limited constitutional powers and could do its best only within that framework.

I understand that a week or so before the Budget announcement—I think on 10 April—a conversation occurred between the Paymaster General and the chairman of the Jersey policy resources committee, who is the senior politician in Jersey. In essence, the Paymaster General told that gentleman that if Jersey did not sign up within a week to the EU code of conduct on unfair tax competition, the UK would introduce options for putting economic pressures on Jersey to do so.

Dawn Primarolo: Will the hon. Gentleman explain whether he is merely repeating what has been alleged in the press or whether he has been told by the senator concerned that that was the content of our conversation?

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He needs to be clear on the matter, because if he wants to pursue that route, there will be a sharp dispute between us about what was said and when. If he is repeating what was reported in the press, perhaps he could say so.

Mr. Flight: I thank the Paymaster General for those comments. In fact, I recollect press reports that had nothing to do with the matter, but were all about the savings directive. The document that I have is the EU tax package statement by the gentleman in question to the Senate in Jersey, and I shall refer to some points in that statement.

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