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Tax Treaties: Developing Countries

Volume 769: debated on Thursday 25 February 2016


Asked by

To ask Her Majesty’s Government how many tax treaties with developing countries are currently under negotiation, and what principles underpin the United Kingdom approach to those negotiations.

My Lords, the UK is currently at various stages of discussions with six countries classified by the United Nations as developing countries. The UK’s starting point in negotiations is based closely on the OECD model double taxation convention. Some developing countries prefer to follow the United Nations model, the provisions of which differ in some areas from the OECD model. The UK has agreed to adopt some of those provisions in its treaties.

My Lords, we agree in this Chamber regularly on the need to improve economic activity and tax collection in the developing world, yet tax treaties can regularly count against that objective. A new report this week by ActionAid shows that Britain has some of the most restrictive tax treaties around the world, in particular that with Malawi. That treaty was signed in 1955 by Sir Gilbert Rennie, the then governor of Northern Rhodesia and Nyasaland, and Rab Butler, the then Chancellor of the Exchequer. It is surely now time to revise that treaty, improve tax collection in Malawi and therefore improve its own economic governance.

The noble Lord is right. We want to achieve the same thing—to help those developing countries where we can. There has been a broadly bipartisan approach to this across the years. As for Malawi, this matter was addressed way back in 2010. Our aim is to have new double taxation agreements with developing countries where we can. There have been particular problems with Malawi that are not concerned with the detail of the treaty but with some of the more diplomatic issues. It is largely completed now but, as I say, there are some Foreign Office issues.

In general, it is our policy to conclude treaties with developing countries, and all new treaties that we manage to sign—these are bilateral treaties, so it takes two to tango—will include anti-abuse measures, exchange-of-information arrangements and assistance with the collection of taxes in both countries.

My Lords, given that we are preparing for the anti-corruption summit that the Prime Minister will chair in London in May, are we feeding the question of updating our tax treaties with developing countries into preparations for that? A lot of the loss to developing countries in terms of tax avoidance is filtered out through various corrupt practices. At the same time, are we considering in our relations with our own Overseas Territories pushing for greater transparency in the money that goes through the Overseas Territories, which is also closely related to this issue?

Of course, we are trying to increase transparency. As the noble Lord will know, in our presidency of the G8, we led on international anti-tax evasion measures and we continue to work with the OECD. We were the first to sign the agreement for international exchange of information. As far as the anti-corruption summit is concerned, that is certainly something we will do. One of the problems, however, is that just increasing taxes in developing countries is not a silver bullet because of corruption: the tax that is raised has to go to the right places.

My Lords, if there is one area that requires joined-up government, it is this. Of course, the Department for International Development, with its 0.7% budget, should be involved in these discussions because, as in the case of Malawi, you could be taking away with one hand and putting in with the other. Has DfID been involved in all these negotiations and will they be linked to the delivery of the sustainable development goals? Never mind the Rhodes statue—surely it is time that the Malawi agreement came falling down.

DfID is involved in the consultations that the Treasury has every year on which countries should be involved and on new taxation agreements to be brought forward. It holds discussions on which goals should be taken forward, but the department is not involved in the individual negotiation of tax treaties, which is for the experts on taxation in the Treasury. It also helps to pay for tax education in developing countries, and the Government have doubled the amount that they are prepared to spend on this through DfID. We think development aid should be controlled and administered through DfID, subject to proper governance arrangements in keeping with our development strategy.

My Lords, the Government rightly take considerable pride in having stood by their 0.7% target, and I am sure we all applaud that. We may have arguments about how it is spent, but we applaud it. However, does the Minister accept that there is real urgency about this matter because it is impossible for developing countries to make a success of their economies, and thus provide the context in which that 0.7% can be well spent, unless the strategic fiscal and financial matters are given priority?

I completely agree with the noble Lord and that is why we are actively seeking to update our tax treaties, particularly with developing countries. All modern tax treaties include anti-abuse measures and provide for an exchange of information so that we can bring them up to date and thus enable those countries to increase their tax rate, but it must be remembered that individual developing countries are also aware of the effects on investment of changing their local tax rates.

My Lords, does the Minister agree that it is particularly embarrassing that companies such as Google are using places such as Bermuda to avoid paying tax on sales in the United Kingdom, particularly since Bermuda is one of our overseas territories and not an independent country? What are the Treasury and Her Majesty’s Government doing to stop this disgraceful tax avoidance?

The Government are leading on making sure that there is international agreement on this. The noble Lord may shake his head, but we used the presidency of the G8 in 2013 to initiate the G20 and OECD Base Erosion and Profit Shifting project, which will better align the taxation of profits. As the IFS has said, it is literally impossible for one Government to do something by themselves. That is why we need international agreement to determine where tax should be paid, and we agree that it should be paid fairly in the countries where it is due.