Draft Double Taxation Relief and INternational Tax Enforcement (Turkmenistan) Order 2016

Jonathan Reynolds Excerpts

Thursday 17th November 2016 General Committees

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

I want to start by thanking the hard-working staff of Her Majesty’s Revenue and Customs who have put so much work into drawing up the treaty we are discussing. My understanding is that the double taxation treaty is part of an ongoing process of negotiating taxation treaties with the post-Soviet countries. Until now, arrangements have followed treaties signed with the USSR, so I am glad that we have the opportunity now to scrutinise the new proposals, which ought to reflect the modern relationship between our two countries. I will put a few questions to the Government in that regard.

Assuming the treaty is passed into law, if a company based in Turkmenistan pays dividends to a resident of the UK, either 5% or 15% of the gross amount of the dividend will be taxed. I say either 5% or 15% because it depends on the nature of the relationship between the recipient and the company. Similarly, interest or royalties arising may be taxed up to a maximum of 10% in the country where the company is based. There are similar provisions for capital gains tax, employment income and so on.

The explanatory memorandum refers to the fact that the UK’s double taxation treaties largely follow the approach recommended by the OECD’s model tax convention. It would be useful to know whether any aspects of this treaty deviate from the OECD’s model tax convention and, if so, which they are. Furthermore, in what aspects does this treaty differ from the United Nations model double taxation convention?

Article 21 of the statutory instrument lays out the allowance of a deduction from a Turkmen resident’s tax bill equal to the amount due in tax in the UK. The provisions for the equivalent deduction for UK taxpayers appear to be rather more complicated. Will the Minister briefly explain the reason for that?

Moving on to the overall effects of the treaty, it will be useful to have some clarity from the Minister on what effects she envisages arising from its implementation. The explanatory memorandum for this order states that the provisions of the arrangements have no impact on the public sector. The same document states that those provisions do not introduce new tax burdens; rather, they provide relief from tax and thus are of benefit to businesses “both large and small”. How much relief will be provided and how much will be lost to the public as a result? Is the net tax impact on the UK likely to be positive or negative?

I understand that precise calculations are difficult, but does the Treasury have any estimates of the broad effects for the Exchequer? How are such estimates reached? The explanatory memorandum states that the arrangements will benefit businesses both large and small. The Opposition’s role in scrutinising such arrangements, even though they may not technically be deemed of a regulatory nature, is certainly made more difficult by the absence of an impact assessment. Hon. Members may remember that in a debate in the summer on a number of double taxation treaties, Labour raised the fact that the Government had not prepared a tax information and impact note. For this order, the Government have again stated that an impact assessment has not been prepared, because double taxation agreements are not regulatory in nature. I put it to the Minister that that response does not seem in keeping with the general principle of impact assessments. Surely the precise legal framework is less important than giving transparency to the proposals so that taxpayers can have a better idea of what the treaty will mean.

According to the Government’s explanatory memorandum, the provisions of the order will

“serve an Exchequer protection role by including provisions to combat tax avoidance and evasion—partly by measures providing for the exchange of information between revenue authorities… They also encourage and maintain international consensus on the appropriate tax treatment of cross-border economic activity and thus promote international trade and investment.”

Will the Minister briefly elaborate on that? More generally, will she give assurances that the treaty will not create or increase any opportunities for tax evasion or aggressive tax avoidance? How does a treaty such as this one fit into the Government’s plans for tackling tax avoidance in a broader sense, and in particular on any plans they have to follow up on their commitment to confirming the UK’s leading role in addressing tax evasion and avoidance?

Hon. Members will be aware that my right hon. Friend the Member for Don Valley (Caroline Flint), supported by Labour Front-Bench Members, has already provided an opportunity to show such leadership via the principle of public country-by-country reporting. It would be good to hear of any progress that the Government are making in that regard.

I expect the Minister is well aware of the work of ActionAid to expose how some companies have used tax treaties to avoid paying their fair share of tax anywhere, to reduce their tax bills massively or to move money from poor to rich countries, exacerbating global inequality. Will she tell us how this treaty will be judged against each of those criteria?

The priorities for Opposition Front-Bench Members are to ensure that the new arrangements benefit this country and Turkmenistan, as well as strengthening the principles of fairness and transparency that ought to be at the heart of our tax system. The purpose of these treaties ought to be to create certainty about tax treatment, which would benefit businesses and their staff in both countries, as well as to combat tax evasion and aggressive tax avoidance. I hope that this treaty will deliver that and that I can get some answers to my questions today, but otherwise I will be more than happy for the Minister to write to me at a later date.