Draft Double Taxation Relief and International Tax Enforcement (Belarus) Order 2018 Draft Double Taxation Relief and International Tax Enforcement (Ukraine) Order 2018

Anneliese Dodds Excerpts

Monday 4th June 2018 General Committees

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to serve with you in the Chair, Mr Robertson. It was very helpful to have the Minister’s explanation of the two orders. It would also be helpful if we could have some of this information in advance—in the notes that are produced alongside orders—because the Minister just answered some of the questions that came to my mind when I looked at the orders. It would be useful if the Government were a little fuller in their introductions to these kinds of order when they are presented to the House.

My first question relates to the overall structure for these kinds of protocol. I expect a number of other protocols will come now that we have agreement on the model tax convention—the OECD instrument that we discussed at length in the House. In November 2015, Her Majesty’s Revenue and Customs published its programme for future negotiations on double tax agreements. That mentioned some of the tax agreements that we have had the pleasure of discussing, but not all of them. It would be helpful to know when HMRC will produce its forward plan, so that the whole House, or at least the Members interested in this area, can scrutinise it.

It was helpful to have the Minister’s explanation on some aspects of the Belarusian agreement. The Belarus economy is quite different from that of neighbouring countries, because of the larger extent of state ownership than in many other nations, and that is reflected in the character of the agreement. However, I have a question about the rules on permanent establishment—a topic that comes up frequently in double tax agreements. Different nations and their companies have often attempted to ensure that profit is taxed in their jurisdiction or not taxed at all, rather than in the area where it is generated. In the Belarus agreement there is a temporal threshold of 12 months to determine the permanent establishment for construction sites. Why was that inserted? I cannot remember that exact threshold from previous discussions, but perhaps the Minister will enlighten us.

Again, I am grateful for the Minister’s explanatory remarks on the Ukraine agreement. The amending protocol was signed by both nations on 9 October. It has been quite a long time between it being signed and it coming in front of the House. It would be helpful to know why it has taken more than six months for it to come to Parliament. There may be legitimate reasons for that, but the process of making these agreements is something of a black box for many parliamentarians. Perhaps that issue is not for this moment, but in future the Government could be open about what the process is between an amending protocol being signed and it coming in front of us. It would be useful to have that information.

The Minister stated that most of the changes in the amending protocol are consistent with the OECD’s model approach. They seem to simplify a situation where, from what I could see, many transactions were exempted from withholding tax. Instead, a reduced rate of tax is now applied more generically across different activities—royalties, for example—which seems sensible.

The Minister answered my question about why withholding tax rates have gone up to 15%, having previously been 10% for dividends where there is not a very large beneficial holding in the paying entity. However, again, it would be useful if, with these agreements, we could have a little more information about these topics so that, as a House, we are not scrabbling around before we come to these Committees, trying to work out why certain decisions have been taken.