Draft Double Taxation Relief and International Tax Enforcement (Gibraltar) Order 2020
(Limited Text - Ministerial Extracts only)
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The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Gibraltar) Order 2020.
May I say what a pleasure it is to serve under your chairmanship, Ms McDonagh? The order before the Committee gives effect to a new double taxation agreement, or DTA, with Gibraltar. DTAs remove barriers to international trade and investment and provide a clear and fair framework for taxing businesses that trade across borders. By doing that, they benefit both businesses and the economies of the countries signed up to them.
I shall say a few words about this agreement. We have agreed a comprehensive DTA with Gibraltar that is based on the OECD’s model tax convention and the domestic tax laws and the treaty preferences of both jurisdictions. This is a first-time DTA with Gibraltar and will introduce a number of improvements for businesses, individuals and Her Majesty’s Revenue and Customs. It will strengthen our relationship with Gibraltar, promote trade and investment and help to tackle tax avoidance.
I shall outline the agreement’s key features. First, it complies with the minimum standards laid down in the base erosion and profit shifting, or BEPS, project, which is the OECD’s framework for combating tax avoidance by multinationals. That means that our DTA includes a statement in the preamble that the DTA is not intended by the parties to facilitate avoidance or evasion, as well as including the principal purpose test—a provision denying benefits under the DTA where the main purpose of the transactions or arrangements is to avoid tax.
Mr Mark Harper (Forest of Dean) (Con)
Does my hon. Friend find it an interesting coincidence, as I do, that at the moment when, in the main Chamber, the Opposition are trying to persuade the House that this Government have done nothing about combating tax avoidance and evasion, the Minister is putting before the Committee a clear example of where the Government are leading our international colleagues in putting in place mechanisms to ensure that we facilitate international trade and business while ensuring that people pay the tax that is rightly due to the British taxpayer?
John Glen
I thank my right hon. Friend for that intervention. I am always very interested in what he has to say. I confess that on this occasion I have not been able to attend the Chamber yet. I look forward to hearing the arguments deployed and will reserve judgment, but what I can do is commend to him the logic and value of this intervention by the Government, and I will go on to explain further why this DTA is a positive step forward.
The DTA is comprehensive in scope, and as such covers all income and gains, including dividends, interest and royalties. However, we have ensured that we will retain the right to apply a withholding tax of 15% on distributions from real estate investment trusts. Also, benefits in respect of interest and royalties are limited to persons who can demonstrate a close connection to Gibraltar. That provides an additional layer of protection against residents of third countries exploiting the provisions.
The new agreement also provides for mandatory binding arbitration, which ensures that disputes are resolved and that double taxation is therefore avoided. Finally, the new DTA provides for mutual assistance in the collection of tax debts. That will mean that, for the first time, the UK can ask Gibraltar to collect tax debts on our behalf.
Together, these features strengthen both countries’ defences against tax avoidance and evasion. In summary, the agreement is one that both the UK and Gibraltar can be happy with. It protects UK revenue and provides a stable framework in which trade and investment between the UK and Gibraltar can continue to flourish. I therefore commend the order to the Committee.
John Glen
I am grateful for the constructive observations of the hon. Member for Stalybridge and Hyde. With respect to the BEPS standards and the principle of stopping the abuse of DTAs, and the wider issue of how the Government might use those standards to inform future DTAs, I acknowledge what he says about the leeway in the OECD standards. I cannot give him a specific commentary, however, because DTAs are done country by country. It is probably appropriate for me to write to him to give him more specific detail, as far as I can, about how we are applying the standards across different DTAs.
The hon. Gentleman asked about transparency and how the arrangement can be scrutinised. The signed agreement was published on the Government website and a ministerial statement was made to that effect on 17 October 2019, which gives MPs the opportunity to make representations. The Government do not consult generally on the content of DTAs, because they are the product of bilateral negotiations that deal with a vast range of complex issues. They are not really suitable for open negotiation, but we have been as transparent as we would expect to be, and as everyone would expect us to be, on that matter.
The hon. Gentleman’s third point was about the UK’s observer status at ECOFIN. I do not have any further information on that; that will be a supplement to the first point in the letter that I write to him. I am aware of the Cayman Islands blacklisting last Monday or Tuesday and the Financial Action Task Force rulings, which we take seriously. I will write to him to give him clarity on that matter, rather than waffle on any further. I hope that that gives him some satisfaction, and that the Committee will approve the order.
Question put and agreed to.