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

Mel Stride Excerpts

Monday 4th June 2018 General Committees

[The Chair]

I call the Minister to move the first motion and to speak to both orders. At the end of the debate, I will ask him to move the second motion formally.

[The Financial Secretary to the Treasury (Mel Stride)]

I beg to move,

That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Belarus) Order 2018.

[The Chair]

With this it will be convenient to consider the draft Double Taxation Relief and International Tax Enforcement (Ukraine) Order 2018.

[Mel Stride]

Mr Robertson, it is a pleasure to serve under your chairmanship for, I think, the first time. It is nice to be able to do that, and it is also nice to be in the presence of my right hon. Friend the Member for Maldon, who is the chair of the all-party parliamentary groups on Belarus and on Ukraine. I know he has important matters that he wants to discuss with the Committee imminently.

I will speak to both orders before the Committee. The first gives effect to a first-time double taxation agreement with Belarus, and the second contains a protocol amending our existing agreement with Ukraine. DTAs remove barriers to international trade and investment and provide a clear and fair framework for taxing businesses that trade across borders. In doing so, they benefit business and the economies of the countries signed up to them.

I will briefly say a few words about each agreement. Belarus is the last country still applying the UK’s 1985 double taxation agreement with the former Soviet Union. When it enters into force, the new DTA will effectively terminate that old agreement. The new DTA with Belarus will mean that the UK has bilateral DTAs with all the countries that once made up the USSR. The USSR agreement provided for broad exemptions from source-state taxation. Belarus takes a different approach to its bilateral DTAs, seeking to preserve taxing rights in respect of dividends, interest and royalty payments that arise there. While the UK takes a different approach, we recognise that states will want to renegotiate treaties to reflect their own circumstances, and nothing would be gained by refusing to engage with Belarus’s wish to replace the USSR DTA.

The new agreement compares favourably with those that Belarus has agreed with other countries since its independence. For example, we have agreed a withholding tax rate of 5% on dividends, while preserving our right to tax dividends from real estate investment trusts at 15%. We have agreed a 5% withholding tax rate on interest, but with an important exemption for lending by banks. The agreement also contains the most up-to-date provisions to guard against treaty abuse, the latest OECD exchange of information article, and a provision for mutual assistance in the collection of tax debts. Those features strengthen both countries’ defences against taxation avoidance and evasion.

The protocol with Ukraine amends our existing 1993 DTA. We entered into negotiations at Ukraine’s request, as part of an exercise it is undertaking to amend its treaties with a number of European partners. The agreements that Ukraine entered into shortly after independence provided for broad exemptions from source-state taxation. It wishes to change that to enable it to tax interest and royalties arising in Ukraine and to raise the rate at which portfolio dividends can be taxed. Ukraine has chosen to do that on a consistent basis across its network as it seeks to reset its position. As such, United Kingdom businesses will not be disadvantaged as compared to their competitors in other jurisdictions.

The new protocol also improves the position of UK businesses in receipt of dividends from Ukrainian subsidiaries. Currently, the provision requires a company to be subject to tax on dividends it receives, while dividends in the United Kingdom are no longer taxable following the introduction of a corporate dividend exemption regime in 2009. The protocol also provides for a more general modernisation of the DTA to reflect changes in the domestic laws of the two states and the OECD model, including substantially all the provisions included in the multilateral convention to implement tax treaty-related measures to prevent base erosion and profit shifting, or the MLI.

In summary, these are agreements that the UK, Belarus and Ukraine should be happy with. They will provide a stable framework in which trade and investment between the UK and Belarus, and the UK and Ukraine, can continue to flourish.

--- Later in debate ---

[Mel Stride]

I thank the three contributors to this important debate. I turn to the matters raised by the hon. Member for Oxford East, some of which were in unison with those raised by the hon. Member for Glasgow Central. First, on the information provided in advance, I would be happy to take a representation from the hon. Ladies on the specific points that it might have been useful to have had included and perhaps use that as the starting point for considering the more general point they both made. It is probably worth pointing out that when we know that such legislation is coming forward, I am always happy to take any questions by way of letter or to meet and discuss the legislation in advance.

I will certainly look into HMRC and its forward programme, as it was described. I am not aware, certainly within my part of the Treasury, of there being a particular list of such matters that are coming forward. Of course, such things are always subject to the timetabling of the business of the House of Commons, as Members will know.

In the context of Belarus, the hon. Member for Oxford East raised the permanent establishment arrangements around the temporal threshold—the 12 months—in respect of construction sites, and she asked the perfectly reasonable question of why that was the case. I am informed that it is a standard OECD-based rule. [Interruption.] She is looking at me slightly quizzically, which is perfectly in order. If she would like some more information, I am very happy to dig a little deeper on her behalf outside the Committee.

There are a couple of points on the timing of the orders and why it has taken quite a considerable time for them to come before the Committee. We have now negotiated DTAs with all of the Soviet successor states. We negotiated with Belarus in 1995 and in 2011, but the political situation and EU sanctions meant that things stalled. The situation has now improved, so we have successfully renewed our efforts. Ukraine has not yet ratified the treaty, so the fact that there may have been a delay between the protocol and the order—hopefully—going through this afternoon should not have any impact.

I turn to the valuable contribution from my right hon. Friend the Member for Maldon, who shared with us his detailed experience of both Belarus and Ukraine. I entirely agree with him about the importance of developing relationships with Belarus for the reasons he gave—the geopolitical reason of its particular leaning towards Russia, and the value of trade with our country in building relationships and encouraging things such as privatisation. I also agree with the important points he made about Ukraine. On corruption, one of the benefits of double taxation agreements is that there are specific measures in place to ensure that we can exchange information on tax matters, wherein a lot of corruption often lies. That is a positive aspect to his point.

My right hon. Friend finished by rightly raising the need, post Brexit, to increase trade with Ukraine and Belarus, and with other, similar countries. Thankfully, as he suggested, that is not a matter for me but for Ministers in the Department for International Trade, where I know he will make representations.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Belarus) Order 2018.

DRAFT DOUBLE TAXATION RELIEF AND INTERNATIONAL TAX ENFORCEMENT (UKRAINE) ORDER 2018

Resolved,

That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Ukraine) Order 2018.—(Mel Stride.)