TNAG-2330-FCO40-3383-Future-of-Hong-Kong-localisation-of-laws-arbitration-1991 — Page 8

RESTRICTED

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Distribution

Main

Hong Kong Agreement

Additional

Ms Brookes Legal Advisers

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PRIORITY

CODE 18-77

Ms Barrett

Legal Advisers

FHKC370/2

*7 AUG 1991

Reference..

13.

Draft term

to Mo Banell for Hearance,

HONG KONG: LOCALISATION OF LAWS: ARBITRATION

1.

ебле

пера. 9/2

I have spent some time looking into the query raised by Hong Kong concerning the above matter. It is indeed correct that the International Organisations (Immunities and Privileges) Miscellaneous Provisions Order 1975 and 1976 (S.I.1975 No.1209 and S.I. 1976 No.211) accord relief by way of refund of car tax paid on any vehicles and VAT paid on the supply of any goods and services which are necessary for the exercise of the official activities for certain international organisations. I acknowledge that no such relief is given to the International Centre for Settlement of Investment Disputes.

2. The most appropriate comparison of ICSID is with the International Monetary Fund (IMF), the International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC) and the International Development Association (IDA). In all the Agreements establishing these organisations it was stated that the Organisation (or the Fund as appropriate), its assets, property, income and its operations and transactions authorised by the Agreement shall be immune from all taxation and from all customs duty. In the legislation giving effect to the Agreements a provision was inserted stating that nothing in the Agreement shall be construed as conferring on the Organisation (or the Fund) any exemption from duties or taxes which form part of the price of goods sold.

3.

These Agreements date from 1946 to 1960 and it is therefore clear that during that period the view was taken that an exemption from taxation in the founding Agreement did not extend to an exemption from taxes which form part of the peof goods sold.

4. I have not been able to establish why such a restriction was placed on the exemption from taxation of these

Organisations, however the view was obviously taken at the time that there should not be relief from taxes which form part of the price of goods sold. It could well be that such a tax was looked on as an indirect form of taxation which could not be said to be a tax on the assets, property or income of the Organisation or on its operations or transactions.

5. However as was pointed out by Hong Kong the 1976 Order accorded to the IMF, the IBRD, the IFC and the IDA relief by way of refund of car tax paid on any vehicles and VAT on the supply of any goods and services necessary for the exercise of the Organisations official activity. This was done by adding wording to the proviso appearing in the original Order.

So

Reference..

that in the Orderr relating to the IMF and the IBRD the words stating that there was no exemption from taxes on the price of goods sold remains, but additonal words were added to give express relief from VAT and car tax. The Explanatory Note for the Joint Committee on Statutory Instruments for the 1976 Order explained that the amendments were required by the relevant founding Agreements establishing the Organisations. No further explanation was given. The Explanatory Note to the 1976 Order states that the Order makes the amendments consequential upon the introduction of car tax and VAT and the necessity to implement our international obligations.

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IFC and

6. I have checked in the back files and can find no reference to why a similar amendment was not made to the Arbitration (International Investment Disputes) Act 1966. It would have been logical to make the amendment at the same time that the amendments were made to the IMF, IBRD IDA Orders. Relief could have been given by an Order in Council under the International Organisations Act 1968, an amending Bill to amend the 1966 Act would not have been necessary. The reason there was an Act in 1966 as opposed to an Order in Council was because primary legislation was required in relation to the provisions concerning enforcement of Convention award.

7. It could well be that there was an oversight or alternatively that it was considered unnecessary to make the amendment albeit that it was felt that we were under an obligation to provide relief for the international organisations covered in the 1976 Order. ICSID have no office or staff in the UK nor are any of their functions carried on here. There would therefore have been no practical need for such a new provision. I am sorry that I am unable to give any greater explanation as to the reason why relief for car tax and VAT is not given to ICSID.

Fina broines

Diana Brookes

Assistant Legal Adviser

K 158 270 3068

2 August 1991

Cc: Mr Sainty, HKD

Mr Wallis, Protocol Dept.

DB8AAV

CODE 18-77