A.—6

2. His Majesty's Government iu Great Britain have accepted the resolution of the 1923 Conference and have given legislative effect to it by a section in the Finance Act of 1925. Section 25 of that Act provides that the Government of any part of the Empire outside Great Britain and Northern Ireland shall be liable to taxation in the latter country in respect of trade operations and of property or income arising in connection therewith. The section at the same time reaffirms the immunity of any such Government from taxation in respect of any income or property which does not arise or is not held in a trading capacity. 3. The Canadian representatives stated that their Government had not as yet been able to see its way to introduce legislation providing for the taxation of the trading enterprises of other parts of the Empire operating within the Dominion. They also pointed out that the Dominion Government could not bind the provinces in any way. 4. The Australian and New Zealand representatives stated that the principle of the taxation of Government trading enterprises was accepted by them. They explained that no specific legislation on the subject had been passed in Australia or New Zealand, but that the view there held was that the existing law provided sufficient authority for the necessary assessments. They concurred in the proposal that foreign Governments should be approached with a view to the acceptance of the principle. The Commonwealth representative, however, explained that, as in the case of Canada, the Commonwealth Government was unable to bind the States in the matter. 5. The South African representatives stated that their Government accepted without reserve the principle adopted by the Conference of 1923. Legislative effect to the principle had been given by the Union of South Africa, and, although this, legislation proceeded on different lines, it had the same result as that secured by the legislation in the Finance Act of 1925 of Great Britain—viz., the taxation of the trading enterprises (and of all property held in connection therewith) and the exemption of other income of the Government of any part of the Empire. 6. The representative of the Irish Free State explained that his Government held the view that under the existing law there was sufficient authority to tax the income and profits of the Government of another part of the Empire, if such income or profits fell within the jurisdiction of the Irish Free State. The Irish Free State did not favour the enactment of general legislation ; the matter was, so far as they were concerned, of no practical importance at the moment, because of the agreement with His Majesty's Government in Great Britain in respect of double income-tax. He stated that his Government certainly favoured the mutual taxation of Government trading enterprises. 7. The Government of Newfoundland have already signified acceptance of the resolution of the 1923 Conference and have given legislative effect to it. 8. The representative of India affirmed his Government's acceptance of the principle of mutual taxation of Governmental trading. India has already given legislative effect to the resolution of the 1923 Conference. 9. Action has been taken by the Government of Southern Rhodesia on similar lines to that taken by the Government of the Union of South Africa. 10. The principle is accepted so far as concerns the colonies not possessing responsible Government, although no occasion has yet arisen for its application in the colonies and there has as yet been no legislation for the purpose. 11. It appears from the foregoing statements of the position that considerable progress has been made along the lines recommended by the Conference of 1923. In these circumstances the subcommittee are of opinion that there is a measure of agreement within the Empire in this matter sufficient to warrant the opening of negotiations with the Governments of foreign countries with a view to the conclusion of reciprocal agreements for the mutual taxation of Government trading enterprises. The agreements would be without prejudice to the national interest of sovereign States in any emergency of war. Signed on behalf of the sub-committee. 17th November, 1926. Percy Thompson, Chairman. TWELFTH REPORT. TAXATION OF NON-RESIDENT TRADERS. The General Economic Sub-Committee beg to make the following report to the Imperial Conference on the subject of the taxation of non-resident traders : — 1. Attention has been drawn to the fact that there is a diversity of method in the various parts of the Empire in the computation of the profits for taxation purposes of a manufacturer or producer resident in one part of the Empire who sells his goods through an agent or branch in another part. 2. The manufacturer or producer is subject to taxation in both countries, though his burden is eased by the arrangements which have already been made between many parts of the Empire for relief in respect of double taxation. As between the Government of Great Britain and the Governments of other parts of the Empire the cost of relief falls either wholly or mainly upon the Exchequer of Great Britain. 3. The total profit of the manufacturer or producer which finally emerges on the sale of his goods abroad may be regarded as consisting of two parts—viz., (1) the "manufacturing" or "producing" profit which arises from activities exercised at home, and (2) the " merchanting " profit which arises from activities exercised in the country of sale (i.e., abroad). 4. There was general though not complete agreement among the members of the sub-committee that such a division was desirable, and that the scope of the charge to income-tax in the country of sale might with advantage be restricted to the " merchanting" profit. This principle has been

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