MP: 'Great danger in seeing international development solely as a function of aid’

The Private Member’s Bill: Double Taxation Treaties (Developing Countries) Bill had its second reading  in the Commons and was debated by MPs, on 16 December 2016. The Bill will place a duty on the Chancellor to align the outcomes of double taxation treaties with developing countries with the goal of the UK’s overseas development aid programme for reducing poverty and to report to Parliament about it.

Roger Mullin (SNP) has brought the Bill forward because of the ‘great danger in seeing international development solely as a function of aid’ when the UK needs to help countries administer taxation so they can invest in their societies. Mullin said estimates claim 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’, the tax that could be earned in Africa would be far greater than the entire international aid that is fed into the continent. He explained: ‘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’. Mullin cited ActionAid research which looked at more than 500 double taxation treaties throughout the world and found that the UK and Italy still have more restrictive treaties than any other country—around 13 are still in place. “Would it not 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”? he asked. He said helping countries to develop their own negotiators is a must.

Patrick Grady, SNP spokesperson for International Development, said the UK should create a new tax treaty with Malawi - the existing treaty is so old that it does not capture the nature of modern commerce, he argued. Tax treaties should mobilise resources for governments in such countries to invest in the development of those countries and help to strengthen their governance, bureaucratic and civil service structures, which would in itself provide stability and development. Philippa Whitford (also SNP) spoke about Zambia. She said: “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 not even any jobs going into the local economy.”

Financial Secretary Jane Ellison: “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.” 

For Labour Shadow Chancellor John McDonnell would like to see a further Bill that reforms parliamentary procedure because at present the ‘deal’ (tax treaty) is only brought before MPs following its agreement. It would lead to ‘more open and transparent’ agreements and allow more engagement with interested parties.

Mark Durkan, from Northern Ireland’s Social Democratic and Labour Party, went a step further than Mullin by stating that if there are to be the new trade deals with developing countries in the post-Brexit world, ‘they should not take place without new tax treaties’. Durkan said the controlled foreign companies rules were changed unilaterally and at the expense of developing countries’ exchequers. against the grain of what the Government say they are about in the BEPS process.

From the Conservative benches Mark Pawsey said Mullin ‘is pushing at an open door’ because the Government has already taken substantial action and agreed to implement two of the base erosion and profit sharing outputs. However Financial Secretary Jane Ellison said the Government will not support the Bill because of the ‘lack of feasibility’ in its practical requirements. Ellison told the Malawian Government that there is no evidence of any UK companies using the UK-Malawi treaty to deprive them of their revenues. HMRC is working closely with DFID, and the Government is 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. She said 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. She said: “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.” The DfID is supporting the OECD’s new ‘tax inspectors without borders’ initiative, it is simply not possible to produce meaningful estimates of the revenue effects of a tax treaty in the sort of timeframe that Mullin said, and countries enter into these agreements willingly. The Bill also asks the Government to assess the benefits of foreign direct investment. Ellison said it is impracticable to isolate the direct contribution of a tax treaty. Finally, she came back at McDonnell and said scrutiny of tax treaties is through a Delegated Legislation Committee and there is a gap of several months between signature and debate.

The full debate can be read here. The debate was adjourned and will resume on Friday 20 January 2017.

Blog by Hamant Verma, External Relations Officer for CIOT

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