Republic of Belarus (Sanctions) (EU Exit) (Amendment) Regulations 2022
(2 years, 3 months ago)
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The Parliamentary Under-Secretary of State for Foreign, Commonwealth and Development Affairs (Rehman Chishti)
I beg to move,
That the Committee has considered the Republic of Belarus (Sanctions) (EU Exit) (Amendment) Regulations 2022 (SI, 2022, No. 748).
The statutory instrument was laid on 4 July under the powers in the Sanctions and Anti-Money Laundering Act 2018, also known as the sanctions Act. The SI has been considered and was not reported by the Joint Committee on Statutory Instruments and the Secondary Legislation Scrutiny Committee, and it was approved by the House of Lords on 20 July. It amends the Republic of Belarus (Sanctions) (EU Exit) Regulations 2019 and introduces new measures targeting the financial, trade and transport sectors.
These enhanced sanctions represent our latest response to the continued support by Belarus of Russia’s invasion of Ukraine, and they aim to deter Belarus from engaging in further actions that destabilise that country. Since 24 February 2022, Belarus has facilitated Putin’s illegal invasion of Ukraine. Lukashenko has openly supported the fabricated narrative used by the Kremlin to justify Putin’s illegal and unprovoked assault of Ukraine, and he has allowed Russia to launch troops and missiles from Belarusian territory and fly jets through Belarusian airspace.
The measures are designed to further ratchet up pressure on Belarus, building on the previous designation of more than 50 Belarusian individuals and organisations for their role in aiding and abetting Russia’s invasion. Let me be clear: Belarus’s behaviour is aiding and abetting Putin’s aggressive actions in Ukraine. The measures build on the wide-ranging sanctions already imposed on Lukashenko and members of his family and his regime for their role in violating democratic principles and the rule of law in Belarus and oppressing civil society, democratic opposition leaders and independent media. I want to make it clear that our grievance is not with the Belarusian people, who are themselves the principal victims of Lukashenko’s repression, but with Lukashenko, his regime and its backers for supporting Putin’s illegal invasion.
The financial sanctions introduced by this instrument will ban more Belarusian companies from issuing debt and securities in London, and prevent them from obtaining loans from United Kingdom banks. The sanctions will also prohibit UK citizens and entities from providing financial services to the National Bank of the Republic of Belarus and the Belarusian Ministry of Finance. That will help to prevent Belarus from using its foreign reserves in ways that undermine the impact of the international sanctions that the United Kingdom is imposing with partners around the world.
Mr John Baron (Basildon and Billericay) (Con)
I thank the Minister for introducing the instrument to the Committee, and I am sure that he will have no trouble getting it passed. Like many colleagues in this place, I have been banned from visiting Russia because of our apparently Russophobic approach and rhetoric. I wholeheartedly welcome the measures, but may I urge the Minister to go further? The bureaucracy in Belarus extends beyond 50 individuals. Given how active those individuals are in supporting Russia’s invasion, surely we can do more to target them and the bureaucracy more generally.
Rehman Chishti
I thank my hon. Friend for his remarks. I have a huge amount of respect for him and for his expertise in foreign affairs—he sat on the Foreign Affairs Committee. He is absolutely right that we must do everything we can to ensure that all levers possible are applied, across the board, to individuals contravening the legislation passed by this Parliament though their unacceptable behaviour in support of Putin’s illegal actions in Ukraine.
My hon. Friend will agree that the difference between us and those in Belarus and Russia is that we believe in democracy. Therefore, the sanctions that we impose in the United Kingdom have their legislation and criteria set through Parliament. We will use every lever possible to hold those individuals to account. We are making it very clear that we are looking at individuals in all sectors and areas where we feel that they are aiding and abetting Putin’s aggressive behaviour in Ukraine. I note his point about ensuring that the measures are continually monitored and reviewed to ensure that we catch the widest number of individuals who need to be held accountable.
The trade sanctions contained in this instrument include a ban on the export of dual-use goods and technology for all purposes and on the export of goods and technologies for critical industries. That includes high-end equipment such as microelectronics, marine navigation equipment, aircraft components, quantum computing components, and oil-refining goods and technology. That in part answers the point made by my hon. Friend on the widening of the criteria under which individuals can be held responsible for the unacceptable activity in Ukraine. That will place further constraints on Belarus’s military, industrial and technological capabilities and on refining petroleum, one of the country’s highest value exports. The measures include a ban on the export of luxury goods to Belarus and a ban on the import of iron and steel from the country.
Finally, the legislation introduces new sanctions on transport. It extends measures introduced in 2021 against aircraft, giving us the power to detain and deter registered Belarusian aircraft. It also introduces new shipping measures, prohibiting Belarusian ships from entering UK ports and introducing powers to detain and deregister ships. I commend the instrument to the Committee.
Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)
It is a pleasure to serve under your chairmanship, Mr Hosie. I welcome the Minister to his first of our discussions on sanctions regimes. He will know from the record that when we have debated them in the past, the Opposition have always approached them in an entirely constructive manner. We will not seek to divide the Committee today, but I want to raise a number of issues and ask the Minister some questions.
We have always supported the Government’s course on sanctions and on taking the toughest and deepest possible action against those who are taking direct action in Ukraine—in the case of Russia—but also those who are aiding and abetting, as is the case with Belarus. Where we have thought that sanctions could go further and be stronger, we have made that argument, and we will continue to do so. I thank the team in the Foreign, Commonwealth and Development Office and others who have worked on putting together the sanctions, which obviously required an intense amount of work.
We have wholeheartedly supported the Government; indeed, the shadow Defence Secretary, my right hon. Friend the Member for Wentworth and Dearne (John Healey), has just been making that clear in the Chamber following the statement on military support for Ukraine. The economic, diplomatic and political pressure that we bring to bear on Russia and those aiding and abetting it is also crucial, so these are welcome measures against the despotic regime of Lukashenko in Belarus.
The House may have been in recess for the last few weeks, but the war against Ukraine and its people has raged on, claiming more lives, wreaking further destruction and continuing to undermine the global rules-based order. We have seen horrific reports of the forcible transfer of Ukrainian civilians, the separation of families and so-called filtration camps. A recent report by Human Rights Watch exposed that more than 3.4 million Ukrainians had entered the Russian Federation from Ukraine, including more than half a million children. Deep concerns have been raised with me by Ukrainians and others about what is happening in those camps. I hope that the Government give that due consideration, as well as the bulk of the illegal armed action that is taking place in Ukraine, in the measures that we take.
It is very clear that, although Russia is the principal perpetrator of aggression towards Ukraine, the Kremlin is not acting alone, as the explanatory notes to the measures clearly set out. Those who aid and abet the Russian regime—Putin’s regime—must be held to account, which is why it is crucial that we approve these measures today. Lukashenko has long been a pawn of the Putin regime, and his brutal, corrupt and autocratic grip on Belarus has made it a regional pariah, undermining democracy at home and peace and stability abroad, particularly in the near region.
We have only to look at the perilous diversion and grounding of Ryanair flight 4978, the irrefutable rigging of the 2020 presidential elections and the many repressive measures taken against the Belarusian opposition, and indeed civil society and those who want freedom of speech in Belarus itself, to show that Lukashenko shares Putin’s penchant for tyranny, repression and disregard of both domestic and international law. That was set in train by the formation of the so-called Union State between Belarus and Russia, which has facilitated the use of Belarusian territory and infrastructure to launch attacks against the people of Ukraine.
Although Belarusian forces have not been committed, as the explanatory notes make clear, Lukashenko’s complicity in the war cannot be overstated. He effectively allowed Putin to invade Ukraine via Belarus, he has surrendered the use of his country as a platform for air raids and missile strikes, and he has tied the regime’s future to a war that has led to the death of thousands of civilians. That has been known from the very first days. We all saw the evidence for what they were doing—it is there, as clear as day—and we have seen some horrific actions in recent weeks, including the launch of missiles towards Ukraine.
The Prime Minister stated that it was the Government’s intention to apply sanctions to Belarus on 24 February. That was confirmed by the Foreign Secretary the same day, so I have to ask the Minister why it took until the start of July for the sanctions to be brought into effect, and why it has therefore taken until today for the Committee to be given the opportunity to debate them. I do not doubt the Government’s intention, and nor do I criticise what they are putting forward, but time and again we have been lagging behind and not moving at the necessary speed. If it is a question of resourcing for the excellent teams in the FCDO and elsewhere that have been doing this work, the Government really need to catch up.
After our most recent debate on sanctions, the Minister’s predecessor, who is now the Education Secretary, assured me that the sanctions taskforce at the FCDO contained 150 permanent staff, and that the Office of Financial Sanctions Implementation had doubled in size. Can the Minister confirm how many permanent staff are now in OFSI and the sanctions taskforce? Has the Department has assessed staffing levels again, and are they sufficient to provide the swiftness that we need? The Ukrainian people do not have time for these sorts of delays when it comes to countries such as Belarus and individuals in those regimes who are taking these actions. We need to move swiftly. If it is a question of capacity, I urge him to look at whether more permanent staff can be brought in urgently.
I agree with the point made by the hon. Member for Basildon and Billericay about the number of individuals being targeted, which seems small compared with the number of those who we know are involved in the Belarusian regime, and potentially in orchestrating and authorising these actions against Ukraine and in support of Putin. I hope that the Minister will answer that question about the numbers involved, come back to us in due course, and keep the measures under constant review. With the measures against Russia, the names of individuals have been regularly updated. I hope that that will occur in relation to Belarus and others.
Lukashenko had the gall the other day to congratulate Ukraine on its independence day. I was marching with the Ukrainian representatives and refugees in Cardiff just last week. Lukashenko said that Belarus will
“continue to stand for the preservation of harmony”.
We know that is absolute nonsense, because less than a month prior to those words being issued he fired 25 missiles, hitting targets in the Chernihiv region and around Zhytomyr on the day when Ukraine celebrated its statehood day.
I echo the words of Sviatlana Tsikhanouskaya, who condemned the attack, saying:
“Lukashenka can’t fool anyone. He is guilty of crimes against Belarusians & Ukrainians & must be held accountable.”
She rightly stated that Lukashenko is effectively allowing Belarusian lands to be used as
“an aircraft carrier for Putin.”
Our actions here in the UK must match that bravery and the starkness of what she and those who work around her, who have often been put at immense personal risk, are setting out.
I also want to ask the Minister about the statement that was made in November 2021, when the sanctions against Belarus were last debated. The then Under-Secretary of State, the hon. Member for Aldridge-Brownhills (Wendy Morton), stated that our
“actions work best when combined with other diplomatic and economic measures, and the UK has assisted independent media and civil society organisations in Belarus”.—[Official Report, 4 November 2021; Vol. 702, c. 1076.]
Can the Minister explain what support is being provided to Belarusian civil society, much of which is being targeted by Lukashenko, to supplement and complement the sanctions that are being debated today? Clearly, the support that has been offered has not been enough to stop the repressive activities that we have seen, as well as what he has being doing inside Ukraine.
Thirdly—I have made this point in many debates on this subject—what consideration is being given to moving beyond the freezing of assets, travel bans and so on to the seizure and repurposing of the assets, whether Russian, Belarusian or otherwise, of those who are directly implicated in the illegal war against Ukraine? We know that demands for reconstruction, humanitarian support and other forms of support for Ukraine are immense, and they are increasing. There is a fiscal reason for ensuring that we get additional resources in, but many people are rightly asking why some assets will sit there, effectively dormant, without being seized and repurposed. What further consideration has been given to that?
In the impact assessment, there is specific mention of issues relating to Belarusian steel and iron products. I am pleased to see those measures. It has been suggested to me—I wonder whether the Minister can shed any further light on this—that materials are being exported from Russia and Belarus via third parties in the steel and iron market, and potentially making their way to our shores and those of allies. It would be deeply concerning if such sanctions-busting activity was going on, either through the rebadging of products or by misleading people about their origins. If the Minister does not have the details today, I would welcome a letter from him on that. What measures have been put in place to ensure that diversionary routes are not being used to send products—particularly high-value products—that originated in Russia or Belarus to our shores? How will we ensure that the measures set out in the regulations are absolutely robust and secure?
The explanatory memorandum states that air and space goods have not been included, as they were in the measures against Russia, because
“Belarus does not have the exact same role as Russia in the war against Ukraine.”
That strikes me as slightly odd. We ought to be taking the toughest measures. It is very clear that, although Belarus has not committed its own troops, it is part and parcel of what Putin is doing, in providing a launchpad—that so-called aircraft carrier—to use against Ukraine. I cannot understand why we would then give Belarus an exemption on aviation and space goods. I recognise that that is probably a fairly small part of its market, but we should not be giving it any scope whatsoever for economic benefit from products that are either directly or indirectly linked to the actions that are taking place in Ukraine. I hope that the Minister can explain why that exemption has been made.
It is clear that Lukashenko must feel the pressure from the west as much as he does from the east. We therefore welcome the overall package of sanctions that the Committee is considering today, which represents a considerable step in the right direction. The war is continuing for far longer than was ever estimated at the beginning. I fear that it will only be protracted and worsen in the months ahead, so we must ensure that our sanctions regime can expand in real time, in real response to the measures taken by Russia with the assistance of countries such as Belarus and the Lukashenko regime. We fully support the regulations. We will not divide the Committee, but I hope that the Minister can answer some of my questions.
Mr John Whittingdale (Maldon) (Con)
I fully support the measures contained in the SI, although I regret their necessity. In 2018 I led the British Group of the Inter-Parliamentary Union delegation to Belarus. We went there because at that time there was an assessment that Belarus might be inching slightly further away from Russia, and that there were some signs of hope that Belarus was moving towards a more democratic society. Those were entirely dispelled at the subsequent election in 2020, which the Organisation for Security and Co-operation in Europe ruled was neither free nor fair, and involved massive and systemic violations and abuses of human rights.
Belarus has an appalling human rights record. It has a history of murdering opposition activists and independent journalists. It was cited as having the worst environment for journalists almost in the world. We particularly remember Pavel Sheremet, the opposition journalist who exposed corruption in Belarus, and was then blown up in his car. I welcome the fact that, at the parliamentary assembly of the OSCE in July, which was hosted by the UK in Birmingham and at which I led the UK delegation, the Government took the decision to refuse visas not just to the Russian delegation, but to the Belarus delegation. Both remain members of the OSCE. The Government quite rightly said that Members of Parliament from those two countries should not be issued with visas in order to attend. We did hear at the assembly from Belarus Free Theatre, which is one of the campaigning organisations subject to repression in Belarus but which nevertheless does a fantastic job outside the country in highlighting some of the abuses going on.
I share the views of my hon. Friend the Member for Basildon and Billericay and the Opposition spokesman, the hon. Member for Cardiff South and Penarth, that we could be going further in terms of sanctions against individuals. The Magnitsky sanctions were specifically introduced to target individuals who we know are guilty of human rights abuses; there are plenty of those in Belarus, particularly in relation to some of the atrocities that I have mentioned, and therefore, as well as the measures that we are looking at today, there is scope for further, targeted sanctions against those individuals who we know are committing human rights abuses.
I also highlight the genuine concern felt in the Baltic states. The so-called Suwalki gap is about 60 miles. It is the strip of land between Belarus and Kaliningrad, which is under Russian occupation. It is a very short space and, should it be occupied by Russia, it would cut off all three of the Baltic states from the rest of the world. The Baltic states genuinely fear the Russian deployment of troops in Belarus; they see it as a direct threat.
For all those reasons, the sanctions are welcome, and I share the view that, in some ways, they should have been introduced sooner. However, while it is absolutely right that we make clear that Belarus’ support for the Russian invasion of Ukraine is wholly unacceptable, we need to go further. This is not just about stopping Belarus supporting Putin in Ukraine; we need to ensure that sanctions remain in place until we achieve a free and democratic Belarus because there should be no doubt that Belarus is a puppet state of Russia. They have ruthlessly suppressed all opposition and attempts to instil democracy and, until we can change that, these sanctions need to remain and, if anything, we need to look to strengthen them in time.
Martin Docherty-Hughes (West Dunbartonshire) (SNP)
It is good to see you in the Chair, Mr Hosie.
Let me reiterate a point made by the hon. Members for Basildon and Billericay, and for Cardiff South and Penarth, and the right hon. Member for Maldon. First of all, in terms of the Suwalki gap, it is clear to me, as the chair of the all-party parliamentary group on Estonia, that the Government and our allies need to go a lot further to ensure that nothing happens to the Baltic states, who valiantly kept their freedom and the idea of their nations alive during the Soviet occupation. In terms of the demands highlighted by the hon. Member for Basildon and Billericay, the House is clear that this is not enough. The Belarus state is a vast monolith of the Soviet era; it is not just 50—forgive me—lackeys. There is an entire state structure, from local government, national Government, all the way down to the health structure, that needs to be tackled.
I certainly will not move against the motion; I think everyone is totally in agreement, but the Government need to move forward quickly to ensure that the Belarusian regime understands that we all mean business.
Rehman Chishti
I am grateful to members of the Committee for their contributions to today’s insightful and timely discussion and I will address the important questions that they have raised. I thank the Committee for its full support for these regulations. The House is united in agreeing that we must do everything we can to stand by the people of Ukraine. The United Kingdom Government at every level, supported by all political parties, took decisive military, economic and diplomatic action to support the people of Ukraine, and we will continue to do that.
I turn to hon. Members’ specific questions. I thank the Opposition spokesman for his constructive dialogue and support, and for raising the issues that need to be raised. We improve regulations and legislation only by engaging in discussion, interaction and reflection, and the process for dealing with the situation in Ukraine has been constructive throughout.
The hon. Member for Cardiff South and Penarth, my hon. Friend the Member for Basildon and Billericay, my right hon. Friend the Member for Maldon and the hon. Member for West Dunbartonshire mentioned the numbers. We must do more. We will absolutely do everything we can to support the people of Ukraine and ensure that those responsible for this unacceptable behaviour are brought to account in order to deter others from such unacceptable actions and deeds.
The figure of 50 was mentioned, but I want to set out the overall mapping, in terms of sanctions, that we have applied to Belarus. The hon. Member for Cardiff South and Penarth and others asked about that. On the designations and criteria that we have applied, under the Belarus regulations 108 individuals and 10 entities were designated pre-invasion. That comes back to the question asked by my right hon. Friend the Member for Maldon. He asked what we have done about the unacceptable behaviour and aggression, and the fraudulent elections in Belarus. What have we done to hold individuals to account—not now, with regard to the Ukraine situation and the Belarus Government aiding and abetting Putin’s illegal invasion, but what did we do then, and what have we been doing since? Some 108 individuals and 10 entities were designated pre-invasion, and an additional six entities were designated in response to the invasion, as they are significant to the regime. They include Alexander and Viktor Lukashenko. The United States has not designated 69 of those individuals, but we have.
The hon. Member for Cardiff South and Penarth says that we need to work with international partners. Absolutely, but the United States and United Kingdom have different legal criteria. Nobody in this House would say to me that we should do anything outside our legal criteria. We will do it in the right way, by applying our legal criteria.
The second set of designations come under the Magnitsky sanctions and the global human rights legislation. Eight individuals have been designated, including Alexander and Viktor Lukashenko, on human rights grounds. Only one of those is not designated by the US, although its designations are via its Belarus programmes, rather than the global human rights regime.
Then we come on to the Russia regulations. We now have a separate entity for Belarus, but from February, when we were looking at Ukraine, we were using the Russia regime. Under the Russia regulations, 47 individuals and seven entities were designated following Russia’s invasion of Ukraine. Some 41 of those individuals are not sanctioned by the US, and the remaining six are. All those entities are sanctioned by the US. Five of the individuals sanctioned by the US and all seven entities are sanctioned under the Belarus programmes, rather than the Russia programme. The remaining individual is sanctioned under the Russia programme.
I have given that answer because I wanted colleagues in the House to know the different regimes that we have applied sanctions under.
Mr Baron
I do not for one moment question the Minister’s good intent. What he said there is absolutely spot on, but what is troubling some of us is that given the size of the Belarusian Government bureaucracy and the state generally in pursuing its aims, which we all condemn, 50, 100 or even 200 are probably not enough. If we are to send a strong message to Belarus and any other people aiding and abetting the invasion of Ukraine, we have to get tougher and perhaps be even quicker in our response. Will the Minister bear that in mind?
Rehman Chishti
Yes. I thank my officials for the note over here, but let me just answer that point. I am trying to multitask in reading, reflecting and answering; hopefully my lawyer’s training helps in that regard. I get the point raised by my hon. Friend. I think the officials get the point. We have to do everything we can. I have tried to give an overall picture with regard to the number of individuals, but his point is that looking at the scale and size of the country, we have to do everything we can to ensure that as many of those individuals who need to be held accountable are held accountable. I get that, and no doubt officials here get that, and it will be taken back and looked at. I will write to him specifically on that point with further details so that he gets the fullest answer.
I want to address another point raised by the hon. Member for Cardiff South and Penarth, about why we are replicating measures made on 28 April. Why are we doing it now? His point was with regard to the timing of the different regulations. The new measures are the latest in a co-ordinated package of measures that the UK has introduced in response to Belarus’s support for the Russian invasion. The point I made earlier was that we put a number of measures and designations into play prior to the invasion. The new criteria that we have put in place extend and broaden the group of individuals who can be held accountable for the unacceptable behaviour of aiding and abetting Putin’s financial actions, and supporting the aggression in Ukraine.
Since the invasion of Ukraine, we have launched a series of sanctions targeting Belarusian individuals and organisations who have aided and abetted this reckless aggression. We designated 47 Belarusian individuals and seven Belarusian entities under the Russia sanctions regime. We also introduced a 35 percentage points increase in duties on a range of products imported from Belarus. Those measures are in addition to the wide range of measures that we have already imposed on Belarus under our Belarus sanctions regime, which include sanctions on Lukashenko and members of his family, and on other individuals and entities.
With regard to the third point that the hon. Gentleman raised on the issue of steel, iron, aviation, space and goods, I will take that matter away and make sure that it is answered as fully as I can, to do justice to the answer, rather than reflecting on it now. I will make sure that he gets a full answer on that specific point.
Rehman Chishti
I will raise the point with my officials tonight, to make sure that it—irrespective of what may happen tomorrow or the day after—can be put into the system today and fully looked at. I say that to my officials as the Minister at this point in time.
The Chair
Order. On balance, I think it might be better if the Minister addressed the House rather than his staff.
Rehman Chishti
Sure. I am grateful, Mr Hosie. I was trying to reiterate that the point was so important that it needed to be conveyed, taken away and looked at. I get the point on that very basis.
Stephen Doughty
I did get a helpful letter on 17 May from one of the preceding Ministers, who is now the Education Secretary—who knows what he will be doing tomorrow? He gave me some further detail on the resourcing, and helpfully said that the task force now has 150 members of staff. Can the Minister give some clarity on whether they are permanent or temporary staff? Secondly, there was no detail on when the new staff—the Office of Financial Sanctions Implementation—are going to be in place, just that the recruitment had commenced. It is crucial that we boost those numbers as quickly as possible. These are complex measures and I know that is why some of them take some time. We have got to have the resourcing in place to ensure that they can be brought forward speedily.
Rehman Chishti
With regard to the answer given by the former Minister on the figures, I want to be frank and clear, because it is a specific question on the numbers and details that the hon. Gentleman has asked. I can ask officials to look at that specific point, and at the breakdown he has asked for. In my early days, when I came in as Minster, I went down and met and thanked the sanctions team. The work that they do in the evolving circumstances is with the latest information and evidence available. We have increased the numbers of staff and officials working on sanctions. The question that the hon. Member asked is about a specific breakdown; I will ensure that he gets a full update regarding that specific point.
Stephen Doughty
It is not just the Minister’s Department; it is also the Treasury, because, crucially, if any of these sanctions are to work in practice, it is also about companies and individuals, and for those who might be trading or engaging with them to be properly informed and have the right information to actually implement them. Crucially, UK businesses, and others, who might have had partnerships or engagement with Belarusian individuals must have that information, so I hope that the Minister will raise it with the Treasury.
Rehman Chishti
I will ensure that every Department that is relevant and connected, with regards to the imposition of sanctions and the figures that he has asked for, makes sure that it answers his question fully and frankly because I think that is absolutely important. In my time in this role, I have tried to engage with parliamentarians across the House and now the questions must be fully answered. If I have missed any specific points raised by any Member, I will ensure that the officials read the document and come back and answer those specific points.
My hon. Friends, it is the responsibility of the United Kingdom and our allies to support Ukraine and take tough action against Putin and those who support his illegal invasion. In co-ordination with our allies, we continue to introduce the largest and most severe economic sanctions that Russia has ever faced, and that we have ever imposed. I am led to believe that the latest figures we have, regarding the situation in Ukraine and Russia and the sanctions that we have imposed, is more than 1,000 individuals and more than 100 entities.
On a recent visit to Canada and to the United States, I have had conversations with our counterparts to ensure that we do all we can, in a co-ordinated manner, and in line with the criteria set by the British Parliament, to impose the swiftest and firmest sanctions that we can regarding individuals, whether in Belarus or in Russia, linked to the aggressive, unacceptable behaviour that we are seeing in Ukraine. My right hon. Friend the Foreign Secretary has committed to going further, and we will continue to do so until Putin ends this war of aggression. It is a matter for Putin to end it. Therefore, until that happens, we will do everything that we can, using all possible levers, to ensure that those who are responsible for that unacceptable behaviour are held to account.
I thank the Committee for their insightful contributions and support for the Republic of Belarus (Sanctions) (EU Exit) (Amendment) Regulations 2022. I hope the Committee will support the regulations. I know the Committee has said it will, but I say that again, and thank the Committee for its support regarding the regulations. On the points that have been raised by the Opposition spokesman and others, I will ensure that the officials take those away and respond to them in as full a manner as possible.
Question put and agreed to.
Resolved,
That the Committee has considered the Republic of Belarus (Sanctions) (EU Exit) (Amendment) Regulations 2022 (SI, 2022, No. 748).
Draft Double Taxation Relief and International Tax Enforcement (Luxembourg) Order 2022
(2 years, 3 months ago)
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The Financial Secretary to the Treasury (Lucy Frazer)
I beg to move,
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Luxembourg) Order 2022.
It is a pleasure to serve under your chairmanship, Ms McVey.
The draft order gives effect to a new replacement double taxation agreement with Luxembourg. The statutory instrument has five main objectives: in a nutshell, it updates an existing agreement so as to make it easier for businesses to understand; it supports cross-border trade and investment; it reduces the tax burden on UK businesses with subsidiaries in Luxembourg; it improves available dispute resolution mechanisms; and it bolsters provisions to tackle tax avoidance and evasion.
I will now turn to the detail of the draft order and the new agreement. As I am sure the Committee understands well, agreements such as this one remove barriers to international trade and investment; they also provide a clear and fair framework for taxing businesses that trade across international borders. Both those things benefit businesses and the economies of signatory countries—in this case, the UK and Luxembourg.
The reality is that our previous agreement with Luxembourg dates back to 1967. As such, it needs updating, for example to reflect changes to the OECD model tax convention and to the domestic tax laws and treaty preferences of both countries. The new agreement also introduces a number of improvements for businesses, individuals and Her Majesty’s Revenue and Customs itself. Updating arrangements to follow many of the latest provisions in the OECD model convention will make it easier for businesses to understand their responsibilities and obligations.
One significant issue for larger companies is continuity in the payment of dividends. Dividends between group companies operating across borders in the European Union were previously exempted from so-called source state taxation under the parent subsidiary directive. The new agreement replicates that exemption for the majority of dividends, ensuring that UK businesses with subsidiaries in Luxembourg will not pay tax in Luxembourg on dividends paid to UK companies. The new agreement exempts the majority of dividends from tax, but it preserves our right to tax distribution from UK real estate investment trusts at a rate of 15%, thereby ensuring that the UK will not lose taxing rights where the profits from those REITs are otherwise exempt.
Disputes are another important issue. The draft order gives effect to the minimum standard on improving dispute resolution set out in the final recommendations of the OECD and G20 base erosion and profit shifting—BEPS—project. It does so by changing how disputes involving the application of the agreements are resolved. The changes mean that where taxpayers consider that the agreement has not been applied correctly, they may present their case to either tax authority, rather than just the authority where they are resident. At the same time, any resolution of a dispute will need to be implemented even if the time limits in the domestic law of either territory would otherwise prevent that.
There are also implications for tackling tax avoidance and evasion. Importantly, the new agreement contains all the minimum standards introduced by the BEPS multilateral instrument to ensure that double taxation agreements are not used to avoid or evade tax. The provisions include the statement in the preamble that it is not a purpose of a double taxation agreement to create
“opportunities for…tax evasion or avoidance”,
as well as a principal purpose test that denies treaty benefits in the case of abuse.
Other anti-avoidance rules in the new treaty include a tie-breaker provision for determining corporate residence based on a competent authority agreement. There is also a provision in the capital gains article that preserves UK taxing rights on gains from shares that derive their value from property in the UK. Finally, the new agreement provides for mutual assistance in the collection of tax debts.
In conclusion, all these features together strengthen both countries’ defences against tax avoidance and evasion, so this agreement is one that the UK and Luxembourg can both be very happy with. The mutual benefits that I have outlined are many. The agreement makes it easier for businesses to understand their obligations and responsibilities, it reduces the tax burden for UK businesses with subsidiaries in Luxembourg, it improves available dispute resolution mechanisms, and it bolsters provisions to tackle tax avoidance and evasion. Above all, it protects UK revenue and provides a stable framework within which trade and investment between the UK and Luxembourg can continue to flourish. For those reasons, I commend the draft order to the Committee.
James Murray (Ealing North) (Lab/Co-op)
It is a pleasure to serve on this Committee with you as Chair, Ms McVey, and I thank the Minister for her opening remarks. I am pleased to respond briefly on behalf of the Opposition.
As we heard from the Minister, the statutory instrument gives relief from double taxation in relation to capital gains tax, corporation tax, income tax and taxes of a similar character imposed by the laws of Luxembourg, as well as relating to international tax enforcement. As we can see, the schedule introduced by the order is largely technical in nature. It follows an approach that is consistent with similar bilateral agreements with other states and territories, and we will not oppose the order. It is important that bilateral agreements concerning taxation are clear.
We also welcome the objective of this double taxation treaty, which the explanatory memorandum makes clear is to
“protect the Exchequer by including provisions to combat tax avoidance and evasion.”
These provisions include
“measures providing for the exchange of information between revenue authorities”,
in order to
“make it more difficult for residents of both territories to evade taxation by concealing assets offshore.”
As the Minister knows from her time in office, the Opposition have been pushing her and her colleagues at every turn to do more to tackle evasion and avoidance. We have pushed them to implement the global minimum corporation tax rate that the OECD and G20 recently agreed, which the Minister mentioned in her speech. Therefore, I will use this opportunity to ask the Minister briefly about the implementation of the OECD agreement.
On 20 July this year, the Treasury published draft legislation that would introduce the new so-called multinational top-up tax. Can the Minister simply confirm whether the new Prime Minister tomorrow will support this legislation? If she cannot confirm that, will she join me in urging the new Prime Minister to continue with this legislation?
Lucy Frazer
I am happy to respond to the hon. Gentleman and I am very pleased to see him after the break. Of course he will realise that as the Prime Minister has just been appointed as the leader of the Conservative party and is yet to go to see the Queen, it would be a little bit premature to set out her plans.
Peter Grant (Glenrothes) (SNP)
I am very pleased to serve under your chairship this afternoon, Ms McVey, and I am delighted to take part in what is by far the most exciting thing to be happening at Westminster this week.
The policy objectives behind this order are ones that we can all support, and I certainly will not seek to divide the Committee today on it. Nobody should have to pay tax twice on the same income; equally, however, nobody should ever be able to dodge their rightful tax liabilities just by moving their money—or, as in most cases, pretending to move their money—to a different country. For those reasons, I particularly welcome the updates to the previous order that show progress towards closing the loopholes that for far too long have allowed wealthy individuals and organisations to use often completely bogus company structures and other dodges to avoid paying their fair share. I have some queries about the detail of the order, and with your leave, Ms McVey, I will discuss each of those in turn.
I welcome the statement in paragraph 7.12 of the explanatory memorandum that tells us that article 5 of the convention
“includes a rule that prevents companies fragmenting their activities in order to avoid the PE threshold”—
the permanent establishment threshold. However, reading through article 5, it is very difficult to find where it says that. Article 5 does not say that in so many words and it does not say it with anything like such clarity, particularly given the Minister’s desire, which she expressed in her opening remarks, to make the regulations easier to understand. What we have in article 5, paragraphs 4 to 7, is a convoluted set of ifs, buts, maybes and exceptions. About the fifth or sixth time I read through them, I thought I understood what they mean. Will the Minister explain why that part of the order had to be worded in such labyrinthine fashion? It seems like a lawyer’s dream, but I suspect it will be a legislator’s nightmare.
The same paragraph of the explanatory memorandum also refers to the fact that some amendments to the definition of “permanent establishment” recommended by the BEPS project are not adopted in the draft order. Will the Minister briefly outline which amendments those are and why the Government do not think it is necessary and appropriate to incorporate them into the draft order?
Paragraph 2 of article 6 confirms that the order applies to the usufruct of immovable property. According to Hansard, the word “usufruct” has only been used three times in Parliament during my lifetime—that is four times it has appeared now—and yes, I did have to look it up to find out what it meant.
There are important and welcome provisions in articles 11 and 12 designed to close down a very frequently abused loophole whereby a company could set up a shell, purely fictitious holding company in a low-tax jurisdiction and agree to pay itself outlandish levels of interest, rents or royalties that could make all the profits of the entire operation appear where they would be least taxed. Article 28 has a more general anti-avoidance provision. Again, I welcome it as an important principle of fairness that companies should pay tax on their profits in the jurisdiction where those profits are generated, but will the Minister clarify how that is going to work in practice? I could see, for example, how interest rates could be benchmarked so that it becomes quite obvious if a company is paying excessively high interest rates to its parent company, but how practical will it be to do that with trademarks? There will be an argument that every trademark has a different value. How do we assess or benchmark the value of the Google or Amazon trademark when those companies are similar to any other company in the marketplace, but are also in many ways unique?
Will, for example, HMRC and its Luxembourg counterparts be looking for evidence that such payments are determined by a long-term, legally enforceable contract between the two companies, and cannot just be made up year by year after the company that is going to pay the money has finalised its accounts and decided how much profit it can have? It is astonishing how often subsidiaries of Amazon, Google and so on seem to pay 99.9% of their in-country profits in the way of rent or other payments to their parent company.
A perhaps more important concern is how HMRC and the Treasury can be sure that they have access to accurate and up-to-date information about company ownerships and directors, and the relationships between companies in the UK and elsewhere, when the official register of companies in the United Kingdom is such an utter mess. The Minister may or may not have been called to higher things by the time these discussions are needed, but when she or her successor is speaking to colleagues in the Department for Business, Energy and Industrial Strategy about when the register will be made fit for purpose, perhaps they could also suggest that companies legislation in the UK should follow tax legislation—follow HMRC’s example—and clamp down on those entirely artificial and bogus company structures that, all too often, are created purely to avoid legal requirements. We have seen examples of how it has been made difficult or impossible for companies to avoid their tax requirements, but why is it possible for them to dodge some of their transparency requirements in the UK? Why is it legal for a company to avoid the requirement to publish full accounts or have them audited just by splitting itself into 20 or 30 mini-me companies so that every single one of them comes down below the reporting threshold, despite the fact that they have identical shareholders and directors?
Moving on to other parts of the order, I note with a passing interest the fact that the UK Government still thought it was necessary to retain the provisions in article 13 giving them the right to tax a Luxembourg company on profits arising from some oil and gas activities in the North sea. That comes as a surprise to those of us who were told in 2014 that the oil and gas had run out. I suspect that between now and October 2023, we are going to be told again that the oil and gas under the North sea is worthless.
Article 21 deals with the taxation of wealth or capital. The memorandum points out that there is currently no tax in the UK based on an individual’s wealth, but can the Minister confirm that if any future Government were minded to introduce a wealth tax of any kind, it would automatically fall within the scope of the order and we would not need an additional order to cover it?
The provisions of article 24 relate to arbitration and dispute resolution. I welcome the fact that the emphasis is now on trying to do things by agreement, and only to go to arbitration as the last resort. Will the Minister clarify how the arbitrator is appointed and, importantly, who pays the cost of arbitration, because it can become an expensive business? How do the Government propose to discourage vexatious or entirely groundless applications for arbitration without unintentionally making it impossible for individuals or organisations who may well have valid grounds for testing the validity of a decision?
Finally, I ask the Minister to confirm, on the record, that article 26, on the exchange of information, is entirely compliant with the general data protection regulation. I fully support in principle tax authorities exchanging information when necessary to catch out people who too often use secrecy to conceal what they are doing and their ill-gotten gains, but if two different jurisdictions are exchanging information, it is important that both agree to comply at all times with the higher of the two standards of data protection applicable. Will the Minister confirm that that will be done with the legislation as it is, and reassure us that should there be any divergence between the UK and Luxembourg through one or the other weakening its current data protection laws, the data rights of UK citizens will not be weakened as a result?
With those comments, I will be happy to support the order going through tonight, but I do have some questions on detail that hopefully the Minister can answer. If she cannot just now, she can possibly write to me at a later date.
Lucy Frazer
I thank the hon. Member for Glenrothes for his detailed and interesting questions. I hope to be able to respond to at least some of them. The hon. Member asked how the principal purpose test applies in practice. The answer is that HMRC has a long history of dealing with avoidance provisions of this type, and the same principles will be applied here, supported by existing guidance and OECD commentary.
The hon. Member asked about anti-fragmentation and the complicated wording; I assure him that it is standard OECD wording, which has been adopted by all countries. He also asked about any potential new capital articles. I would reassure him that the provision would cover any new UK tax on capital. On how arbitration works, the costs will be paid by the states and details of the operation are set out by a competent authority agreement. On whether article 26 complies with GDPR, the answer is yes, it is fully compliant with GDPR provisions.
The hon. Member pointed out the issues of beneficial ownership. He will know that the UK was the first country to introduce a public register of ultimate beneficial owners of companies—the people with significant control register. Recently, we have also introduced a largely public register of beneficial owners of overseas entities that own UK property, and we expect that new register will be useful in tackling tax non-compliance as well as economic crimes.
Peter Grant
On the question of the register of beneficial ownership, how effective—if indeed they exist at all—are the penalties for knowingly providing false information, or for knowingly withholding information? I regularly look at companies’ records at Companies House where it is clear from looking at the shareholdings that someone has very substantial control, yet the official register says that no one has significant control. When will the requirement to report that actually be given teeth, so that it becomes mandatory, instead of effectively voluntary as it is now?
Lucy Frazer
It is of course important that we have penalties appropriate to the provisions in any legislation. The hon. Gentleman will know that we are looking very carefully at the issue of beneficial ownership. He also asked about a wealth tax; there is no current intention to bring in any wealth tax. For all those reasons, I commend the draft order to the Committee.
Question put and agreed to.