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General Committee Debates
Delegated Legislation Committee Debates
|©Parliamentary copyright||Prepared 3rd November 2010|
Publications on the internet
General Committee Debates
Delegated Legislation Committee Debates
Draft Double Taxation Relief and International Tax Enforcement (oman) order 2010
The Committee consisted of the following Members:
Glenn McKee, Committee Clerk
† attended the Committee
The Chair: With this it will be convenient to consider the draft Double Taxation Relief and International Tax Enforcement (Switzerland) Order 2010, the draft Double Taxation Relief and International Tax Enforcement (Singapore) Order 2010, the draft Double Taxation Relief and International Tax Enforcement (Mexico) Order 2010 and the draft Double Taxation Relief and International Tax Enforcement (Austria) Order 2010.
The orders will amend existing full double taxation treaties and are therefore of a different nature from the tax information exchange agreements that were debated yesterday. They deal with amendments to our treaties with Austria, Mexico, Oman, Singapore and Switzerland. As with the treaties that we debated yesterday, they were all negotiated and signed under the previous Government. Double taxation treaties have always received cross-party support, and I am happy to confirm that this Government will continue to support them.
Double taxation treaties reduce or remove tax barriers to international trade and investment and are of great benefit to British business, which warmly welcomes them. They set out the rules and limits under which one country may tax an enterprise of the other operating in its territory. They limit the amount of withholding tax that may be imposed on investment income and provide a method for tax disputes to be resolved between the two countries. The treaties are increasingly important in ensuring international tax compliance and provide for the exchange of tax-related information between the two countries. Moreover, in some cases, they assist in collecting the other country’s tax.
The Austria order has two protocols. They were signed in Vienna on 11 September 2009 and update the double taxation convention, which was signed in 1969 and was previously amended in 1977 and 1993. The first protocol inserts the latest OECD article on the exchange of information. The additional protocol, added at Austria’s request, sets out the manner in which the exchange of information will be effected. It is intended to provide for the exchange of information to the widest possible extent, while reinforcing the principle that tax authorities are not at liberty to engage in fishing expeditions.
The protocol in the Mexico order was signed in Mexico City on 23 April 2009 and amends the double taxation agreement with Mexico, which was signed in 1994. The protocol updates the agreement in a number of ways—first, by recognising a new Mexican business tax, which will enable UK businesses to receive credit for the Mexican tax. The protocol amends the dividends article to permit the taxation of dividends paid by UK real estate investment trusts, in line with the UK’s preferred position. It also inserts a paragraph into the article to prevent its use for tax avoidance. Finally, it updates the treaty’s exchange of information article to the latest OECD standard and adds an article on assistance in collection.
The protocol in the Oman order was signed in London on 26 November 2009 and amends the double taxation agreement with Oman, which was signed in 1998. When the 1998 agreement was signed, Oman was in the process of introducing a withholding tax on royalties, though the precise details were still not settled. The agreement provided for no tax to be withheld from royalties, but allowed Oman to request renegotiation once it had introduced its withholding tax. Although it had the withholding tax for some time, it was only in 2008 that it exercised that right. The protocol will now allow an 8% withholding tax on royalties, which is lower than Oman’s domestic rate of 10% and in line with what it has agreed with other countries. The protocol also eliminates the withholding tax on dividends—previously a maximum of 10%—which is good for UK business investing in Oman now that the UK exempts foreign dividends received by UK companies. The protocol protects the position of distributions from UK real estate investment trusts and includes an article on assistance in collection.
The protocol in the Singapore order was signed in Singapore on 24 August 2009 and amends the double taxation agreement with Singapore, which was signed in 1997. At Singapore’s request, it simply updates the exchange of information article in the treaty to bring it in line with the latest OECD standard. Separate negotiations are taking place with a view to updating the whole agreement.
The Switzerland order has two protocols. They were signed in London on 7 September 2009 and amend the double taxation agreement, which was signed in 1977 and was previously amended in 1981, 1993 and 2007. The first protocol inserts a new mutual agreement procedure article that contains an arbitration provision, in line with the current OECD approach. Both Government and business in the UK, firmly support the OECD approach on arbitration because it ensures the elimination of double taxation in the rare cases where the two tax authorities cannot agree on the allocation of taxing rights between themselves—for example, in a transfer pricing case. The protocol also updates the exchange of information article to the latest OECD standard.
An additional protocol reproduces material from the OECD model tax information exchange agreement and the commentary to the OECD model double taxation agreement. That material was inserted at Switzerland’s request and is designed to provide reassurance that the UK will not engage in fishing expeditions to Swiss banks. It is in line with what Switzerland has agreed with other countries, and we are content that it does not undermine the OECD model provisions. In particular,
Chris Leslie (Nottingham East) (Lab/Co-op): It is a delight to serve under your chairmanship, Mrs Riordan. Members of the Committee have been waiting eagerly for weeks and months to debate these issues, and I am glad that at last the moment has arrived.
I should like to ask the Minister a few specific questions. These protocols were signed by my right hon. Friend the Member for East Ham (Stephen Timms), so it would be surprising if we did not support what has been agreed. I gather that a lot of them are based on the model tax convention on income and capital, published by the OECD. It seems to be a fairly regular arrangement, whereby OECD member states update their mutual obligations in tax law between one another. It has been quite difficult to track down even a summary, never mind the full text of the convention. I think that there are some copyright issues. It might be useful at some point for those of us who are not particularly adept at navigating the “interweb” to be directed to where we can find the summation of the OECD model tax convention. That aside, it seems in essence to be the inspiration for a lot of national authorities when they negotiate the tax treaty arrangements.
As the Minister has helpfully described, many of the provisions in these orders are pretty straightforward in terms of mutual agreements on resolving disputes and objections, the exchange of information and so forth. I shall run through a couple of them. Why is the treaty with Austria necessary, particularly as it is a member of the European Union? I would have thought that the EU arrangements kicked in at some level and would not necessarily require such a treaty to be in place. Although I am a novice when it comes to European matters, I would have expected a baseline level of inter-EU nation state co-operation that did not necessarily require a supplementary treaty or set of agreements to be made on top of it. That is my only question in respect of Austria.
The Oman order looks pretty straightforward. There is a provision to take account of the Mexican business rate flat tax. I would not put it past the coalition parties to draw much of their inspiration for their forthcoming Budget from as far afield as they may look, but could the Minister explain what the Mexican business rate flat tax is and how it operates?
My main comments focus on the arrangement with Switzerland. It is clear that that agreement is only one part of the story. I understand that there have been further developments and extra deals have been reported in some of the specialist financial press, suggesting that HMRC has managed to make a further agreement with Switzerland in respect of a withholding tax arrangement for UK holders of Swiss bank accounts. I had hoped that the Minister would update the Committee on that arrangement, in so far as that order is merely a taster of what might come before the House at some later date. My only concern is that it says that the exchange of information can take place but only under certain
I want to double check with the Minister that he is content that the anti-money laundering arrangements, the anti-terrorism and anti-criminal activity provisions in Swiss law are on a par with those in UK law. As I read the agreement, the UK could use information only if it were disclosable under the Swiss legal framework and vice versa. That is used as a de minimis standard of legal disclosure. Clearly, many people will have a vestigial memory of the Swiss reputation for banking secrecy and privacy and an understanding of some of these provisions going back many decades. Therefore, if we obtained and shared information, could it be used to pursue serious matters of criminality, for example? I want to get an assurance that the Minister is happy with the exchange of information standards.
The further deal that is being done was flagged up in the press as though the UK and, apparently, Germany are almost conceding to Switzerland that they are content for its very tight privacy arrangements to continue, so long as some withholding tax is paid now. Certain reports have suggested that that could yield a withholding tax at a very high level; others have said that it would be at a lower level. Can the Minister update the Committee on the current expectations of the yield from the agreement that has been reached with the Swiss? What assurances have we had to give in exchange for that agreement to preserve, defend or accept ongoing privacy and secrecy that we might otherwise have sought to question? If the Minister has any further information on how that new arrangement will work, I should be grateful to hear it.
Finally, my only point on the Singapore order is that many people often say that wealthy clients these days do not bank with Switzerland but will go to Singapore as a preferable option. Will HMRC seek a similar set of fresh negotiations with Singapore on a withholding tax arrangement? What is the state of the latest negotiations on the secrecy and privacy arrangements with Singapore? That is where much of the worldwide spotlight seems to be focusing. Otherwise, I think that this is a fairly healthy set of agreements.
John Mann (Bassetlaw) (Lab): May I, too, say what a pleasure it is to serve under your “chairship”, Mrs Riordan, and to hear the Minister eulogising the previous Government? The fact that a Government praise a previous one, or that one Minister eulogises a previous Minister, pleasant and unusual though that is to hear, does not mean that the orders are necessarily the most appropriate in the current climate. I express no particular knowledge of tax matters in Mexico, Oman or Singapore, so I will give the Minister the benefit of the doubt on those agreements, not least because my right hon. Friend the Member for East Ham previously negotiated them, and he is most astute and assiduous as a Member, as he was when a Minister, so I am sure that they are the most appropriate deals that the country can get. However, I will ask a few questions on the two European agreements.
On the agreement with Austria, I heard my hon. Friend the Member for Nottingham East ask an appropriate question about the EU context. Not all countries in the EU play the same way. Indeed, I recall the hassles and
My question to the Minister is this: were those rather arbitrary and unfair arrangements, which benefit Austrian business at the expense of British business, taken into account during the negotiations and were they resolved? Are there any other anomalies where the good Government of Austria have put their national interest ahead of the working of the EU? As a keen fan of the EU and of a free and open market, the Minister will want to reassure the Committee on that.
Switzerland, of course, is not a member of the EU; it is not a member of many worldwide organisations, other than the international coalition of tax avoiders. Over the past century, Switzerland has repeatedly been in the unique position of allowing people to deposit moneys secretly in Swiss banks for all sorts of nefarious activities. Those people include modern terrorists and criminals from other states. During and after the second world war, vast mounts of money that had been thieved by the Nazis were hoarded in Swiss banks, and Switzerland used its neutrality as an excuse for allowing such deposits. The criminal fraternity also uses Swiss deposit boxes for storing its lucre.
Most critically, bankers worldwide have brought the economies of the world, including our own, towards their knees in the past three years, creating huge budget deficits in countries with comparable national debt to our own. Those include Germany, France, the United States, Japan, Italy and many more major economies across the world. Those bankers relish the opportunity to use tax havens such as Switzerland as a way of hiding from us the politicians, from the rest of their depositors and from the general world, including politicians in other parts of it, who wish to get firmer controls regulating the banks.
Here is an opportunity for the Minister to make his name in negotiations with the Swiss Government, to ensure that we improve the situation—not with derogations that allow and agree to the fact that we will not look into the Swiss bank accounts of British nationals. Precisely the opposite should be happening. We should be in favour of transparency, particularly in relation to those countries that choose to have an opaque financial system to the detriment of the world economy.
Consider the decisions that some—certainly myself—have said have been made unwisely by the coalition Government, who are backed by the Liberal Democrats in their ultimately short-term but not long-term electoral wisdom. We are suffering the consequences of such decisions made precisely because of the bankers’ crisis, which forced the deficit on this country and on other countries in the western hemisphere. We should therefore use every opportunity to force transparency on the financial world and to remove the tax havens of the world. Here is such an opportunity. Why has the Minister therefore not used—as his Treasury Ministers above him would wish him to do—this opportunity to create further transparency in financial dealings?
Mr Gauke: I am grateful to have an opportunity to respond to the questions asked by the hon. Members for Bassetlaw and for Nottingham East. I am also grateful for the time that the hon. Member for Bassetlaw has enabled me to take to bring my thoughts together.
First, I turn to the question about the OECD model convention, asked by the hon. Member for Nottingham East. The model convention is available from the OECD, but I am afraid that the bad news is that it is available on subscription. He mentioned being a novice to such events, but if he would like to meet officials to go through the OECD model convention and to discuss some of the considerations that officials and Ministers take into account in negotiating such matters, he is more than welcome to do so. [ Interruption. ] Perhaps he wants to take me up on that straight away.
Chris Leslie: I am grateful to the Minister. I will probably do that—I will check my diary, but I am pretty certain I will be able to do that. Being the pedant that I am, that has reminded me that there was also a problem in the explanatory memorandum. When talking about the consultation outcome, it referenced a link to a website, www.hmrc.gov.uk/si/dtc-2010.htm, which I am afraid to say did not work. Also, when I was trying to find out even more information, there was a failure on the HMRC website.
Mr Gauke: The hon. Gentleman has put that on the record, and I will certainly ensure that that concern is looked at. He described the sitting this afternoon as the highlight of his parliamentary career, but I can tell him that the briefing he will receive will far surpass it.
Turning to the individual orders and the countries that we have discussed, first is Austria. The hon. Gentleman asked why that order was necessary, given that Austria is clearly an EU member state. An existing EU directive covers the exchange of information but it does not, as yet, allow for the exchange of information covered by banking secrecy laws in Austria. Therefore, the protocol goes further than the EU directive—if memory serves, I think that Austria was keen to negotiate a carve-out for banking secrecy. There are EU proposals to align the directive with the OECD standard, but we do not want to wait for that to happen, hence we have proceeded with the order—I should say, more correctly, that the previous Government proceeded with the order, but we are keen to continue the process.
The hon. Member for Bassetlaw asked whether it was appropriate to enter into an agreement with Austria and whether other measures to facilitate greater free trade with Austria should have been discussed or entered into at the time. I understand that such issues were outside the scope of the negotiations, which focused on the limited agreement and did not raise broader matters, as he would have liked. I am sorry to hear about the difficulties that his business had in Austria in the past.
The hon. Member for Nottingham East referred to the Mexican business rate flat tax. That is a somewhat complicated provision, and it would be difficult for me to adequately convey the necessary detail in the debate this afternoon. However, I am happy to provide him with further information on the matter, which I am sure he will find of interest.
On Switzerland, the first point about the specific agreement was that the measure relates to tax only. The hon. Gentleman rightly referred to other occasions where information exchange, for example, would be helpful, as would anti-money laundering or anti-terrorism provisions. There are other instruments for receiving information in that area, such as the mutual legal assistance agreement. That is where the focus lies in such matters, as opposed to this agreement, which focuses on tax matters only. He is right to say that it is important to have a proper exchange of information.
The hon. Gentleman also raised the recent discussions between the UK and Swiss Governments about a possible withholding tax, and he is right to say that that matter has emerged in the past few days. Last week, I signed a declaration, along with the Swiss Finance Minister, that commenced formal negotiations to find out what arrangements could be reached on a possible withholding tax to apply to interest paid to UK residents with Swiss bank accounts. Not unreasonably, questions were asked about the yield, but we are entering into formal negotiations, and I do not want to make predictions about yield or detailed negotiating positions at this point. The process has begun formally and there will of course be an opportunity to update the House and for the House to have the final say in passing any legislation that may follow. At this point, we are not committed to anything other than exploring the area as part of a negotiation. Both we and the Swiss can walk away if we do not reach an agreement, although we are keen to find one. There could be a substantial yield for the UK as a consequence.
Chris Leslie: I am grateful to the Minister for those comments, and I understand his point. The reports have been framed in such way as to suggest that the Swiss, worried at growing international criticism and almost anger at the secrecy and accusations of evasion that are levied against them, have thought it prudent to try to strike deals with one or two countries as a way of buying off a worse fate in the shape of sanctions that might be placed against their banking institutions.
I should be grateful if the Minister assured the Committee that the UK is not being used as a soft touch or as a way of showing that we have not raised objections to secrecy and privacy provisions simply because we are agreeing an arrangement on withholding tax. I do not want our country to be used in that way. The rest of the world also has legitimate issues to raise with Switzerland on privacy.
Mr Gauke: Let me put it this way, and I will also respond to the question about whether we are giving up on the search for the automatic exchange of information with Switzerland. We will always press for automatic exchange of information where that is feasible and realistic. In the case of Switzerland, our assessment is that that is not likely to be achievable in the medium term. We are therefore willing to consider solutions the effect of which would be as good as automatic exchange. That is a pragmatic response. Some people might, as a matter of principle, be opposed to exploring such matters, but we think that that would be the wrong course of action. I am not sure what the Labour Party position is on that.
The previous Government entered into not exactly the same type of arrangement, but it is worth drawing an analogy with the Liechtenstein disclosure facility.
The hon. Member for Nottingham East also asked whether we will enter into similar agreements with the likes of Singapore. All that I can say is that we are always happy to discuss proposals to improve tax co-operation with any of our international partners, and that clearly includes Singapore.
|©Parliamentary copyright||Prepared 3rd November 2010|