Double Taxation Treaties (Developing Countries) Bill

Roger Mullin Excerpts

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

[Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)]

I beg to move, That the Bill be now read a Second time.

I wish to start by quoting a statement from the UK Government with which I agree 100%—[Interruption]—strange as that may seem. The UK Government’s aid strategy states:

“International development is about much more than just aid.

I am bringing this Bill forward, because international development is about much more than just aid.

I became interested in these types of issues many years ago when I first started doing international work. My first such job was for the Food and Agriculture Organisation of the United Nations. Over the years, I have worked on 26 international assignments that have involved countries in the developing world. I have worked in places that I did not even know existed before I was asked to accept a contract—being a Scotsman I accepted the contract and then looked up the place on the map. I have been in places such as the Marshall Islands, in the middle of the Pacific ocean, and in the middle east, in places such as Oman and Yemen—where at one stage I thought I was being kidnapped—but most of my time and 16 of my assignments have been in Africa. On my last assignment before joining this House, I was funded by the Norwegian Government to evaluate the Benguela Current Commission’s research unit, which was researching the Benguela current as it ran up South Africa, Namibia and Angola.

I have had a long interest in development matters. I have never been funded by a charitable body, always by bilateral Government arrangements or sometimes at the request of the United Nations or the World Bank, as well as on a couple of occasions by the Asian Development Bank. One thing that struck me in my early days doing such work was that although I believe passionately in aid and funding and that the Government have done absolutely the right thing by being at the forefront of paying an agreed percentage of GDP to the developing world, that will never be enough to address the needs of some of the poorest countries in this world. Indeed, there is great danger in seeing international development solely as a function of aid.

Let me tell the House one thing. There have been estimates that if somehow the world was able to stop all the tax evasion and tax avoidance in the continent of Africa, and to clean up the system, including in the small areas I am considering, the tax that could be earned in Africa would be far greater than the entire international aid that is fed into Africa. My challenge today is to people who say that they do not like international aid in the sense of our sending money for good purposes to the developing world.

[Stewart Malcolm McDonald (Glasgow South) (SNP)]

I wonder whether my hon. Friend has anyone in mind when he says that.

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[Roger Mullin]

Funnily enough, I have more than one person in mind. If we were to scour this House I might well find one or two who take that position, but I do not think that today is a day to be mean-spirited about anyone.

[Mark Durkan (Foyle) (SDLP)]

The hon. Gentleman should not invite a voice-activated intervention.

[Roger Mullin]

I can tell this is going incredibly well already.

One thing I wanted to say at the beginning of my speech was that, being who I am, I could have been very disappointed in the raffle, but here I am with 45 minutes or thereabouts to discuss my private Member’s Bill. Most Members would be keen to get a full hearing and a vote, but I know that that is not going to happen with this Bill. However, I could not be prouder than to have my Bill considered following the one that this House has just chosen to accept. [Hon. Members: “Hear, hear.”] I am sure that there are many people who feel the same.

I come back to my experiences in different parts of the developing world. In the agencies I worked with over the years, I came across many people who, although they were devoted to helping alleviate poverty and engage in capacity building and believed in the need for aid—many had worked in this field for many years, including a great friend of mine from Lossiemouth called David Thomson, who has worked in more than 60 countries—they also passionately believed that we would never cure the problem until we liberated those countries so that they could better take care of their own resources.

What do we know about international taxation treaties or double taxation treaties? They are set up for firms, such as UK firms, that operate in a developing country but are headquartered in the UK. They are often called double taxation treaties because nobody wants a company to be taxed twice on the money it earns. So these treaties were set up—in many cases, many years ago—to try to prevent double taxation.

However, over the past 10 to 15 years, what we have seen developing are not treaties that allow companies to be charged in just one place, but treaties that are part of an arrangement that allows too many international and multinational corporations to avoid paying tax in any country. We want to find ways in which we can assist countries in the developing world to take responsibility—to take care of their own taxation system and to invest taxes in their own society as they see fit, thereby building a capability that means they are no longer dependent on traditional aid.

[Patrick Grady (Glasgow North) (SNP)]

I warmly congratulate my hon. Friend on bringing forward the Bill. Does he agree that one country that could really benefit from being able to mobilise its own domestic resources through taxation is Malawi? He spoke about treaties being agreed some time ago. The treaty currently in place between the United Kingdom and Malawi is in fact between the United Kingdom and the colony of Nyasaland, because it was signed before the country achieved independence—something, of course, that we in Scotland hope to do eventually as well.

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[Roger Mullin]

If memory serves me correctly—I go back much further than 1955—the treaty with Malawi does not include goods such as televisions, because they did not even exist in Malawi in those times. The treaty is so out of date that it does not capture the nature of modern commerce. The UK Government have been making moves in recent times to renegotiate the treaty, and that is very welcome, but it remains the fact that there is still a place for that 1955 treaty today, and it is by no means the only such treaty.

Research has been undertaken by, for example, ActionAid, and I compliment it on the campaigns it has been running and thank it for the assistance it has given me in constructing this small Bill. That research looked at more than 500 double taxation treaties throughout the world and suggests that despite all the good work the UK Government have done over the last 10 years or so, the United Kingdom and Italy still have more restrictive treaties than any other country—around 13 are still in place.

What are taxation treaties about? They are about how much tax should be paid. Some restrictive treaties actually prevent Governments from imposing taxes—say, some types of corporation tax—that they may wish to impose, so they remove democratic responsibility in terms of countries putting together their tax.

The second thing taxation treaties typically deal with is where the tax is actually paid. In a bilateral relationship, the treaty often favours the country where the company is headquartered. Why are companies in advanced western societies—not just the UK, but the US, Germany, Italy and the like—engaged with developing countries?

I do not know of any international corporation that wants to move its headquarters from London, Edinburgh, New York or Berlin to site them in some poor country in central Africa, but they do want to operate there. Why is that? The typical type of operation is to exploit the country’s natural resources—minerals and the like. In another country I am very familiar with—Namibia—there is diamond mining, which is exploited by some large Australian corporations, among others, and uranium mining. Other types of natural resources are found in the Benguela current, which has some of richest fishery grounds in the world.

[Dr Philippa Whitford (Central Ayrshire) (SNP)]

I have had an association with Zambia through fundraising, and on a trip there I became aware of almost a new form of colonialism. There are many Chinese companies where not only the leaders but the entire workforce are Chinese, so copper is being mined, the profit is being taken away and there are no jobs at all going into the local economy.

[Roger Mullin]

I was unaware of that case, but there is a parallel. When I was first asked to go to Namibia shortly after its independence to meet members of the Government in the large fishing port of Walvis Bay, they asked me and the others who were there to do a study on how they could Namibianise, as they called it, the fisheries sector. We asked why that was a priority, and they said, “We have one of the richest fishing grounds in Africa, but we’ve been under the apartheid regime of South Africa and that form of colonialism for years. There isn’t a single company in Walvis Bay owned by Namibians, and more than 90% of the people employed in the whole sector are non-Namibians.” The Namibian Government eventually took control and Namibianised the entire fisheries sector within 10 years, and it was more productive afterwards. It was a great success. Perhaps we tend not to hear about the successes where Governments in Africa and elsewhere take control and make a real difference for themselves.

I passionately believe that if we could liberate these countries to have more control of their own economies and taxation systems, that would move them away from any culture of dependency that some people say they have. It would be more liberating for them and better for everyone all round. I could be wrong, but I believe that it would be a better way, in the longer run, to achieve everyone’s objective of removing the scourge of the type of poverty that exists in these countries, with which we are entirely unfamiliar in the United Kingdom.

[Patrick Grady]

I thank my hon. Friend for giving way again; he is being very generous with his time, as he is in so many aspects of his conduct. One country in central Africa, the Democratic Republic of the Congo, should be one of the richest countries in the world. We all carry a little bit of the DRC around with us in our pockets because that is where the coltan that makes our mobile phones comes from. Yet because of the factors he is describing, it is one of the world’s worst conflict zones. Does he agree that effective tax treaties would not only mobilise resources for Governments in such countries to invest in the development of those countries but help to strengthen their governance, bureaucratic and civil service structures, which would in itself provide stability and development?

[Roger Mullin]

I agree entirely. I will respond to that with a slight oversimplification. Let us look at it in this way. If a country has become solely dependent on aid funding for its development and does not have full control of its own taxation and its own mineral resources, what kind of governance structure is set up to accommodate that? It will be about people chasing aid funding, not developing and liberating themselves economically. In some countries, quite a large of part of their administration and democracy is based on managing aid-related matters much less than on managing its own taxation and related matters. Therefore, the infrastructure will benefit through such moves.

I think that the Bill will provide a further advantage for the United Kingdom Government. In another field, I have been trying to persuade the Government to respond to my representations about international criminal activity in Scottish limited partnerships. I am delighted to see that the Financial Secretary is present to respond to the debate, because last week we had what I thought was an extremely constructive meeting about the issue. We recognised that to address the issue of Scottish limited partnerships we had to involve not merely the Treasury but the Home Office and its Criminal Finances Bill, as well as the businesses that would be conducting a consultation. Three different partners would need to be brought together, so that we could begin to create a joined-up approach.

What I am saying, and what my simple Bill is saying, is this. Would it not it be a good idea if those who are responsible for negotiating tax treaties with countries in the developing world had to take reasonable account of our own Government’s international aid policy, because otherwise the Government’s international aid policies, and what they want to achieve in that regard, could be countered in a negative way through the negotiation of tax treaties by others who do not support those aims? It must surely be helpful to governance here, as well as in other countries, to create a system that is much more joined-up. That is surely in everyone’s interests. Who is going to argue against it? Well, my hon. Friends and I can probably predict who, but it seems to me that no rational person could object to a Government’s pursuing their aims in a joined-up and rational manner.

[Dr Lisa Cameron (East Kilbride, Strathaven and Lesmahagow) (SNP)]

I congratulate my hon. Friend on bringing this extremely important issue to our attention. Does he agree that his proposals would also go some way towards creating sustainable jobs and livelihoods in developing countries, an ambition that sits firmly at the heart of the sustainable development goals that the UK Government are signed up to achieve?

[Roger Mullin]

I strongly agree with my hon. Friend. The joined-up approach that I mentioned is not just within Departments; it comes about through international commitments that the Government have made to others. It is therefore good that we sign wider international treaties relating to development.

[Hannah Bardell (Livingston) (SNP)]

“Trade over aid” was mentioned earlier. Many companies and organisations in the United Kingdom, and particularly in Scotland, will benefit from the Bill. The Glasgow film-maker Carol Cooke, who runs Scrumptious Productions, works with Barefoot in Business in Uganda to support grassroots women’s organisations and encourage women to run their own local businesses. The Bill will help more businesses of that kind, in the UK and specifically in Scotland, to go out to countries that are trying to develop their local economies.

[Roger Mullin]

That is a wonderful example. Double taxation treaties will benefit people in a wider sense—a cultural sense—although that is not stated in the Bill. If we can achieve fairer tax and fairer trade, along with mutual respect and more cross-pollination between countries than we have today, that, in its own modest way, will contribute to a more peaceful world. Generally, the more people engage with each other, the less likely they are to deal with each other in less than rational ways.

[Mark Durkan (Foyle) (SDLP)]

I commend the work that the hon. Gentleman has done on the Bill, and, of course, the work done by ActionAid. He has referred to fair tax and fair trade. I hope that the Bill will proceed, so that it can be improved in one significant respect. If there are indeed to be the new trade deals with developing countries that we are told there will have to be in the post-Brexit world, they should not take place without new tax treaties. The Bill deals with when such tax treaties are introduced, but it does not insist on their creation. That would be insisted on if new trade deals had to be accompanied by new tax treaties.

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[Roger Mullin]

My main response to the hon. Gentleman is to apologise for being higher up the ballot than he is, because obviously he could have made a much better job of this than I have, but I hope that he appreciates my modest efforts. I agree with what he said. This is a modest Bill; it does not ask for anything particularly dramatic. I am only too well aware that it is likely to have technical flaws that the Government would like to address. If the Bill progresses to Committee, I would fully expect amendments to be tabled and debated, because that is what this process is about. A Second Reading debate is about the principles of a Bill, not about whether every i has been dotted and every t crossed. I would be keen to see the hon. Gentleman’s point brought in to strengthen the Bill, if it progresses.

[Kirsty Blackman (Aberdeen North) (SNP)]

I appreciate my hon. Friend promoting the Bill. Following on from the point made by the hon. Member for Foyle (Mark Durkan), does my hon. Friend agree that, if the UK is going to be much more responsible for negotiating trade deals than it has been in recent years, it would be good to start the process with a big gesture of good will to put us on a much better footing with regard to negotiating both trade and tax deals in future?

[Roger Mullin]

My hon. Friend makes a very good point.

[Madam Deputy Speaker (Mrs Eleanor Laing)]

Order. I appreciate that the hon. Gentleman is answering the point made by the hon. Member for Aberdeen North (Kirsty Blackman), but—I am not particularly criticising the hon. Gentleman, who addresses this House with expert rhetoric and I can always hear what he says—I am taking this opportunity to make a point about other Members who are sitting in that corner of the Chamber. It is not just an old-fashioned rule that when you stand up to speak, you must address the Chair; if you do not, your voice goes into the corner and the Minister, other Front Benchers and I cannot hear what is being said. I appeal to Members that, even though they are currently exchanging interventions with one another in that corner of the Chamber, they please address the Chair, because everybody else wants to hear what is being said. I am not criticising the hon. Gentleman; I am just asking for his co-operation.

[Roger Mullin]

Thank you, Madam Deputy Speaker, for your wise words and for giving me the compliment that others in the Chamber wish to listen to me.

On the post-Brexit situation, I am sure that many hon. Members will acknowledge that there has been great concern about the imbalance between the negotiating ability of the UK Government, who have not employed negotiators for many years, and the capacity of the 27 remaining EU countries, which will have access to all the negotiators. It is thought that the Government will be at a disadvantage by having to face large numbers of really skilled negotiators and using people who may be less skilled.

I ask the Government to think about what we are saying about how treaties are negotiated between a country as powerful as the UK and countries such as Malawi and Namibia. I have been in countries that do not have any of their own negotiators. Even worse, they sometimes have to bring in people from a country in the developed world to assist them in negotiating with that very country. When I was in a country in Africa, I worked alongside a German who was funded by the aid organisation GTZ, and part of his task was to negotiate on behalf of that country with the German Government. We can see that there is scope for difficulty—compromise and the like—in all that. We need to make sure that we build capacity in such countries to enable them to ensure fairness. There is an ethical responsibility on us to ensure that we deal with those countries fairly, which is in the interests of everyone.

The Minister is keen to have sufficient time to respond, so I will leave my remarks there, other than to say that I am very grateful to hon. Members for staying and showing an interest in what, for me, is an important matter. I wish everyone a happy Christmas.

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[Jane Ellison]

There are two things I would say. First, our work on double taxation treaties cannot be seen in isolation from the wider work we have led through the OECD on the BEPS project and a lot of the legislation we have passed. Since just 2015, there have been more than 30 different measures that will come into effect on avoidance and evasion.

My second point, to reiterate what I was saying before I took the hon. Gentleman’s intervention, is that these are mutually agreed treaties. If a country is not comfortable with anything being proposed—not that the UK would propose anything close to what he suggested—the treaty is mutually agreed and it is right that we respect the balance developing countries wish to strike in negotiations as much as we would respect any country’s position. Our network of treaties with developing countries demonstrates that. We have no power to force a developing country to sign a treaty that is against its interests, and would never try to do so. If the UK and a potential treaty partner cannot come to an agreement that satisfies us both, the treaty simply will not go ahead.

I turn to some of the specific issues that the Bill would entail for any Government negotiating such treaties, because while we respect and agree with the thrust of the Bill’s intent, we do not think we could, from a technical point of view, carry out some of the analysis that the Bill suggests.

Let us take, for example, the idea of assessing the impact. Given the long timescales, the complex and shifting interactions with domestic law and the lack of a reliable comparator, we believe it is simply not possible to produce meaningful estimates of the revenue effects of a tax treaty in the sort of timeframe that the hon. Member for Kirkcaldy and Cowdenbeath is suggesting. These are long-term projects with partner countries. Successive Governments have never attempted to produce assessments of the effect on the UK, let alone for a partner country. To attempt to do the latter—to assess the impact for the partner country—would very likely not be welcomed by that country, as it would essentially represent the UK’s uninvited judgment of its tax policies. I entirely endorse his comments about mutual respect. However well intentioned, the idea of our passing judgment on another country’s tax policy runs counter to the key principle of mutual respect.

[Roger Mullin]

I am afraid that I do not accept the Minister’s point about evaluation for the following reasons. She says we have very good treaties, which are well respected and work well. How do we know that they work well if there is no evaluation of them? No one was suggesting that any evaluation would be one-sided. It is perfectly possible to have bilateral or multilateral evaluations.

[Jane Ellison]

I understand the hon. Gentleman’s point, but I still cannot agree with him. He asks how we can show benefits. I repeat that countries enter into these agreements willingly. We have over 130 of them, and there are more in the process of renegotiation, particularly those that are outdated. Countries would not be seeking to renegotiate or enter into that bilateral discussion if they did not feel there was mutual benefit in their doing so.

I have recently signed several such treaties—we have recently exchanged treaties with Colombia and Lesotho—and had the opportunity to talk to countries about why they do it, and it is clear they believe it is to our mutual advantage. Over time, these bilateral relationships must be to our mutual advantage. It is also worth noting that countries can rescind treaties. If countries did not think it to their advantage, they could rescind the treaties. We have not locked countries into these arrangements; they are entered into by mutual agreement, and countries can exit from them.

The Bill also asks us to assess the benefits of foreign direct investment, but again that would be very difficult, if not impossible, on the basis that FDI depends on such a wide range of factors. Investors will consider all sorts of things, including: existing and planned infrastructure; changes to the country’s legal system; political stability—often critical in the developing world; the education level of the workforce; and access to markets. The idea that we could assess in isolation the direct contribution of a tax treaty is impracticable. It would be part of a mix that moves a developing country from poverty to greater wealth; during that journey, all those things, and more, begin to fall into place to produce an environment in which wealth can be created to the benefit of the country because people want to invest there. To analyse one of those things in isolation, however, would be an extremely difficult proposition.