Draft Double Taxation Relief and International Tax Enforcement (Taiwan) Order 2021

Lucy Frazer Excerpts

Thursday 25th November 2021 General Committees

[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 (Taiwan) Order 2021.

It is a pleasure to appear before you again, Ms Rees.

The draft order will give effect to a protocol that was agreed in August to amend the existing double taxation agreement, or DTA, in relation to Taiwan. The order inserts into legislation important provisions recommended by the Organisation for Economic Co-operation and Development and the G20’s project on base erosion and profit shifting, or BEPS, to prevent abuse of the DTA and to improve dispute resolution.

The draft order also includes the latest exchange-of-information provisions following the OECD model tax convention, which informs bilateral treaty negotiations and is largely followed by the UK. Furthermore, the order adds a rule to protect the UK’s taxing rights over dividends paid from investment vehicles linked to land and property such as UK real estate investment trusts, or REITs.

I will now give a brief explanation of the draft order’s context before talking in more detail about the changes that it makes. As Members may recall, the BEPS project was an international effort co-ordinated by the OECD to tackle tax avoidance and improve the operation of double taxation agreements generally. It recommended a range of provisions that could be adopted in DTAs to ensure that they continued to fulfil their main purpose of supporting global trade and investment while limiting the opportunity for the agreements to be used for tax evasion or avoidance.

The draft order includes all the minimum standards that were recommended by the BEPS project to prevent avoidance through the abuse of tax treaties and to improve dispute resolution in relation to the Taiwan DTA. Specifically, the order gives effect to the minimum standard on preventing treaty abuse by adding a rule known as the principal purpose test. This ensures that the DTA does not provide opportunities for non-taxation or reduced taxation through evasion or avoidance, including through so-called treaty shopping arrangements, where transactions are routed through particular jurisdictions to take advantage of benefits provided by its DTA. Furthermore, the order changes the preamble of the DTA to make it clear that the contracting parties do not intend it to be used to avoid tax.

The draft order gives effect to the minimum standard on improving dispute resolution set out in the final recommendations of the BEPS project by changing the provisions that govern how disputes involving the application of the DTA are resolved. Those changes mean that, where a taxpayer considers that the DTA has not been applied correctly, they can present their case to either tax authority, rather than just that of the territory where they are resident. It will also ensure that any resolution of the dispute must be implemented even if the time limits in the domestic law of either territory would otherwise prevent that.

The draft order includes other changes that were optional recommendations of the BEPS project. Such provisions clarify the treatment of fiscally transparent entities and insert a so-called saving clause, which makes it clear that the DTA cannot be used to sidestep domestic anti-avoidance rules. In addition, the order updates the tiebreaker rule, which determines the residence of dual resident companies under the DTA. Furthermore, a new provision ensures that, where a dividend is paid out of investment vehicles linked to land and real property, such as UK real estate investment trusts, the UK has the right to withhold tax at 15% on the dividend. That is an important provision included in recent UK DTAs and it protects the UK’s taxing rights over income from land and property situated in its territory.

Finally, the draft order updates the provision relating to capital gains. This allows the UK to tax gains on shares and comparable interests that derive at last 50% of their value from immovable property. I hope hon. Members have found this explanation of the context and detail of the order helpful. To sum up, the order implements improvements to the DTA in relation to Taiwan to tackle tax avoidance and evasion and to improve dispute resolution in line with current international standards. I commend the order to the Committee.

--- Later in debate ---

[Lucy Frazer]

I thank both Opposition Members for their contributions; it is helpful to hear from the hon. Members for Dunfermline and West Fife and for Ealing North that they will not be opposing the instrument today. The hon. Member for Ealing North gave a very clear summary, and he will know that on matters of international taxation we are very grateful to work with our international partners. I am very happy to discuss those wider matters of international taxation with him on another occasion. I am also happy to take up the point that the hon. Member for Dunfermline and West Fife mentioned. He will know that we always review our laws at appropriate times.

To sum up, the order strengthens the integrity of our network of DTAs, which play such an important part in facilitating the UK’s cross-border trade and investment. This legislation will ensure that our DTA in relation to Taiwan continues to meet the latest international standards on preventing treaty abuse and improving dispute resolution. In doing so, it will further support the already warm relationship we share with Taiwan.

Question put and agreed to.