Double Taxation Treaties (Developing Countries) Bill

Mark Pawsey Excerpts

2nd reading: House of Commons
Friday 16th December 2016 Commons Chamber

[Jane Ellison]

It was only this week that the Prime Minister responded directly on that subject, so the hon. Gentleman does not need my assurance because he has had it from much higher up the governmental food chain.

As the hon. Gentleman intervened earlier on the subject of Malawi, I want to get this point on the record. I have done a lot digging into this issue. It is true that we are negotiating an updated treaty with Malawi, which we hope to conclude soon, but the Malawian Government have stated that there is no evidence of any UK companies using the UK-Malawi treaty to deprive them of their revenues. An official statement from the Malawian Government said that

“both the Malawi Government and the British Government, as well as the nationals of the two countries, have evidently acted in good faith to ensure that neither party is exploited on the basis of the current agreement.”

I wanted to give the hon. Gentleman and the House that assurance on the Malawi treaty.

[Mark Pawsey (Rugby) (Con)]

Does my hon. Friend agree that the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) has some laudable aims, but that he is pushing at an open door because the Government have already taken substantial action and agreed to implement two of the base erosion and profit sharing outputs? They are therefore travelling in the direction he is asking for.

[Jane Ellison]

My hon. Friend is right. The OECD’s BEPS project is really important in addressing some of the issues the hon. Member for Kirkcaldy and Cowdenbeath talked about. The UK has played a leading role in that project and will continue to do so. A large number of countries have come on board with those principles and we will continue to move forward on them.

It is worth restating that the UK became the first G7 country to meet the UN target of spending 0.7% of gross national income on international development. The way in which we tackle the challenges in developing countries is very much in the spirit of what has been discussed in this debate. We understand the idea of helping people to develop capacity and independence so that they are not dependent on aid. At the heart of what DFID and the Government are doing is the idea of strengthening people so that countries can move forward and develop.

We help people to strengthen their economies and reduce their reliance on aid in a range of ways. Last year—I am particularly proud of this because it involves HMRC working closely with DFID—we committed to doubling the funding for tax projects in developing countries through the Addis tax initiative. HMRC has set up a specialist tax capacity-building unit, which deploys staff to developing countries to provide technical tax expertise. It is working closely with DFID on that.

Bilateral tax treaties can play a part. Treaties are important in encouraging private sector activity in a partner country. We know how powerful a force that can be in driving up employment, providing quality goods and services, and raising crucial tax revenues, which finance public services in those countries. We have about 130 treaties with countries across the globe, including several with developing countries, to support and sustain cross-border trade and investment by tackling double taxation and clamping down on cross-border avoidance and evasion.

The treaties are reached through negotiation by experienced officials from HMRC and are highly technical documents. Let me provide assurance on the specific points the hon. Member for Kirkcaldy and Cowdenbeath made about who is involved and the process that goes into those documents. They follow consultation exercises that help to establish appropriate priorities. That process includes the consideration of representations made by UK businesses, NGOs, other Departments including DFID and the UK’s missions based in developing countries. The approach to these treaties is very collaborative and open so that we reach the right priorities that work for both parties. Decisions on the negotiation or renegotiation of a tax treaty are taken on the basis of a range of factors, including the results of HMRC’s periodic review of the tax treaty network and the role of treaties in promoting development. The Government already strive to take wider issues, including development, into account and align our tax treaties with our wider development policies.

I know there are some concerns about the treaties, and some have been alluded to today. Let me be very clear that the UK never ties our wider assistance or investment to such treaties. We cannot impose tax treaties on other states, including developing countries, and we never try to do so. Every tax treaty we negotiate is necessarily a reflection of the interests and priorities of both states as equal partners. That of course will mean some trade-offs. Sometimes developing countries face a trade-off between reducing their tax rates and rights to encourage investment and maintaining those rates and rights and so risking losing investment. That is their judgment to make. Before engaging in a treaty negotiation any country would think about what its priorities are.