The
Committee consisted of the following
Members:
Blizzard,
Mr. Bob
(Waveney)
(Lab)
Cable,
Dr. Vincent
(Twickenham)
(LD)
Devine,
Mr. Jim
(Livingston)
(Lab)
Etherington,
Bill
(Sunderland, North)
(Lab)
Gauke,
Mr. David
(South-West Hertfordshire)
(Con)
Iddon,
Dr. Brian
(Bolton, South-East)
(Lab)
Kennedy,
Mr. Charles
(Ross, Skye and Lochaber)
(LD)
Lilley,
Mr. Peter
(Hitchin and Harpenden)
(Con)
Luff,
Peter
(Mid-Worcestershire)
(Con)
Main,
Anne
(St. Albans)
(Con)
Marsden,
Mr. Gordon
(Blackpool, South)
(Lab)
Meale,
Mr. Alan
(Mansfield)
(Lab)
Newmark,
Mr. Brooks
(Braintree)
(Con)
Pugh,
Dr. John
(Southport)
(LD)
Purchase,
Mr. Ken
(Wolverhampton, North-East)
(Lab/Co-op)
Wright,
David
(Telford) (Lab)
Glenn
McKee, Committee Clerk
attended the Committee
Fifth
Delegated Legislation
Committee
Tuesday 1
July
2008
[Mr.
Jim Hood in the
Chair]
Draft Double Taxation Relief and International Tax Enforcement (Taxes on Income and Capital) (Moldova) Order 2008
10.30
am
The
Financial Secretary to the Treasury (Jane Kennedy): I beg
to move,
That the
Committee has considered the draft Double Taxation Relief and
International Tax Enforcement (Taxes on Income and Capital) (Moldova)
Order
2008.
The
Chairman: With this it will be convenient to discuss the
draft Double Taxation Relief and International Tax Enforcement (Taxes
on Income and Capital) (Slovenia) Order 2008 and the draft Double
Taxation Relief and International Tax Enforcement (Taxes on Income and
Capital) (New Zealand) Order
2008.
Jane
Kennedy: It is such a beautiful day, Mr. Hood,
that it would be injurious to our health to be sitting out in the warm
sun. We are better off in here, debating these three orders relating to
double taxation treaties. Each one builds on a previous treaty. I
believe they are extremely straightforward, and hope they will find the
support of the Committee. I know that the hon. Member for South-West
Hertfordshire has been discussing with my officials some of the
concerns that he has. I think it would be helpful to the Committee if I
hear those concerns now and respond to them
later.
10.31
am
Mr.
David Gauke (South-West Hertfordshire) (Con): It is a
pleasure to serve under your chairmanship once again, Mr.
Hood. It was not long ago that I had the pleasure of doing so in the
Finance Bill Committee.
We are
looking today at treaties with regard to Moldova, Slovenia and New
Zealandan unlikely combination, but one that has attracted a
great deal of attention from Members on this side of the Committee who
represent Hertfordshire constituencies. That throws in another strange
geographical
combination.
I
am grateful to the Minister for making her officials available to
provide me with a briefing on the treaties. It was a very informative
briefing, and I thank her and her officials. We have not had one of
these debates on double taxation relief and international tax
enforcement for some months, and I am grateful to the powers that be
for scheduling them on the same day as the Report stage of the Finance
Bill; otherwise, we would be unduly detained by preparing for those
matters.
As the
Minister says, the orders are of a technical nature, and are not
controversial. However, it is customary on these occasions to press the
Minister on the specific issue of the confidentiality procedures in
place in the
jurisdictions with which we have negotiated the treaties. The New
Zealand treaty relates more to international tax enforcement in that it
amends the existing article 25 regarding double taxation
relief.
New Zealand
is a jurisdiction which, I think it fair to say, does not throw up a
great many concerns. There are many similarities between our countries,
and one would expect it to have a very well developed tax system.
However, with regard to all three jurisdictions, will the Minister
reassure the Committee that there are no concerns that information of a
confidential nature provided to those jurisdictions would be treated
inappropriately?
The
treaties with Slovenia and Moldova both include provisions relating to
the exchange of information but do not include provisions with regard
to assistance in the collection of taxes, as the more advanced
treaties, such as the amended New Zealand treaty, do. Why is that the
case, and is there any intention to look at the issue of assistance in
the collection of taxes with regard to those
jurisdictions?
Turning
specifically to Slovenia, I note that there is a 15 per cent.
withholding tax on dividends, which was higher than negotiated in some
cases, including that of Moldova. My understanding is that this is just
where the negotiations got tonot that there was a particular
demand on the part of Slovenia for a lower withholding tax and they
were prepared to go to 15 per centbut I should be grateful if
the Minister would just explain the background to those
negotiations.
Article
19 of the Slovenia treaty also contains a provision related to
professors, teachers and researchers. That provision is not contained
in the Moldovan treaty and I think is increasingly not used, but could
the Minister clarify why the Slovenians wanted to insert that
particular
provision?
Equally,
with regard to article 26(6) of the Slovenian treaty, there is a
reference there to pension schemes which, as I understand it, is
limited to employees but does not include the self-employed. Again, I
do not think that was a case of its being something that we were
particularly keen on but were prepared to concede. If the Minister has
anything to say with regard to the significance of that, we would be
grateful.
I
know, having done the debate on Macedonia, that this is at least the
second double taxation treaty entered into with a republic of the
former Yugoslavia. I should be grateful if the Minister would provide
details to the Committee more generally as to where we are with those
republics.
Briefly
turning to Moldova, article 5(3) of that treaty defines
permanent establishment to include consultancy
services. Again, I think that was something that the Moldovans were
keen to include but which is perhaps not normally the case. If the
Minister would like to say a word or two as to the significance of
that, we would be grateful. My understanding is that, prior to this
treaty, there was no double taxation treaty with Moldova. I think that
double taxation treaties are now in place with most of
Europewith the possible exceptions of Albania and Armenia, I
was informed by the Ministers officials. I know there are a
number of African and South American countries where there are still no
double taxation treaties, but if the Minister has any information as to
whether there are any other gaps in Europe, as it were, it would be
helpful to the Committee if she would let us know.
Subject to
those various questions and queries, we have no objections to these
treaties.
10.38
am
Dr.
John Pugh (Southport) (LD): I am not sure that one
realises when one enters Parliament that, some sunny Tuesday, one will
be discussing the Double Taxation Relief and International Tax
Enforcement (Taxes on Income and Capital) (Slovenia) Order 2008. It is
a privilege. On the face of it, it is a perfectly obvious necessity
following from freedom of movement and global capitalism for the
avoidance of the appreciable ills of tax evasion and double
taxationpeople either paying no tax or paying far too much tax.
Clearly there is an onerous task for the Treasury officials in
harmonising, integrating and regularising different fiscal regimes. One
has to admire the skill and ability they put to the task, because they
have to put up with not only changes of Government policy but, in the
case of two countries here, changes of
nationhood.
I
understand that treaties such as this are meant to last 20 years and,
given the amount of effort that goes into constructing them, I would
not want to be doing them any more frequently than one should. The task
is clearly being made easier over timeI think there are 100 of
these treatiesby a greater number of EU and international
protocols which are setting some kind of standard, particularly on
transparency. That is, I think, where the New Zealand statutory
instrument comes from.
I was
privileged to have a very educational briefing from Treasury officials
who told me about matters beyond my ken. On this issue, for individual
companies or individuals who want to check out where they stand, the
Treasury website is surprisingly clear about what is a pretty complex
problem. What we have before us is a technical task that has been
completed, which has followed from detailed negotiation over a
considerable time and within different financial cultures, and we place
a huge responsibility upon officials to get it right. It is a difficult
task and in some ways it is almost presumptuous for elected Members to
want to unpick it all here and now without going back to Moldova,
Slovenia or wherever to discuss it
further.
However,
I should like some clarification on a couple of points. One has already
been raisedthe special Moldovan professors regulation, which
seems to allow Moldovan professors coming here to have a privilege of
tax exemption which would not apply to other nationals, which seems
odd. I should like to know why that was put in place and why the
British Government thought it appropriate to accept
it.
The
second is an article that is in both the Moldovan and Slovenian
legislationarticle 16, which applies specifically to sportsmen
and entertainers, who, of course, are highly mobile individuals. In
particular, it is paragraph (2) that concerns me, where it
says that income that a sportsman acquires, if paid to somebody else,
may be taxed within the country where the income is acquired. That
would seem to indicate that if a football player got a huge transfer
fee as a result of moving from one premier league club to another, his
agent, even though domiciled elsewhere, would be eligible for UK tax.
That falls within the remit of a particular treaty and if it were a
Moldovan player and a Moldovan
agent, it would all be straightforward and hunky-dory, but the world of
football and entertainment is much more complex than that and it may be
that the players agent, who benefits from the transaction
taking place in the UK, is actually resident in a third country. Is
there any way of ensuring that tax would be paid in such
circumstances?
Finally,
I should like to come to a slight anomaly I have found. This is a
result, not so much of this particular statutory instrument, but of
activities elsewhere, on the Public Accounts
Committee.
Mr.
Ken Purchase (Wolverhampton, North-East) (Lab/Co-op): This
is far too exciting for
me.
Dr.
Pugh: The hon. Gentleman might find this bit quite
exciting. There is an enormous amount of energy going into getting
things right, so that we do not get Moldovan tax evaders, or British
tax evaders going to Moldova, and one totally appreciates
thatthe thrust is quite rightbut a recent National
Audit Office report established that, if we have a problem with tax
evasion on an international basis, it is far closer to home, in
particular with British overseas
territories.
Bermuda,
for some peculiar reason, has the highest GDP per head on earth, with a
population less than that of my constituency. The Cayman Islands has
80 per cent. of the worlds hedge funds and its
financial regulations have been very severely criticised by the
National Audit Office; yet it is seen largely as a problem for the
Department for International Development rather than the Treasury.
These are not foreign countries; they are places that we provide
Governors for, they are British overseas territories, and I simply
wonder whether we will, one day, see similar documents. I did look on
the Treasury website to see what agreements we had with these various
places to ensure that tax evasion could be addressed in some
substantive way, because clearly it is going on on a massive scale in
connection with the British overseas territories. I know it is slightly
outwith this particular SI, but might I tempt the Minister to say what
progress is being made on
that?
Mr.
Purchase: Would the hon. Gentleman give
way?
The
Chairman: Order. I think the hon. Member for Southport
identified that he was straying away from the orders and I advise
Members not to be tempted to join
him.
Dr.
Pugh: I take your point, Mr
Hood.
10.44
am
Jane
Kennedy: May I just say that tax evasion is illegal and
very serious and is pursued very vigorously by tax authorities, not
just in the UK, but in all the countries with whom we have double
taxation agreements? Tax avoidance is a different matter and is a legal
activity, although we take a dim view of artificial steps to shelter
income from tax. That is all I will say on that point, Mr.
Hood. The hon. Gentleman needs to be careful with the language he uses
in reference to the tax systems, particularly of the countries with
whom we are making these treaties.
On the point
of confidentiality, the hon. Member for South-West Hertfordshire is
quite right to emphasise the need for all of these agreements to be
couched in terms that protect the confidentiality of the tax
information that may only be exchanged between the competent tax
authorities within each country. The exchange must be foreseeably
relevant for the administration or enforcement of the provisions of the
convention or of the UK or any of these three countries
domestic law. The exchange must comply with the restrictions on the use
and disclosure of information exchanged. For example, it can only be
used for tax purposes, not for any other. That is a standard that we
apply to all our taxation agreements and these are perfectly within
that standard.
The hon.
Gentleman also asked about the OECD article 27, regarding assistance in
the collection of taxes. He is right to draw attention to the fact that
that is not included in two of the orders. The treaty was negotiated
before we had changed the law to allow such a provision to be included.
Although we do now generally seek to include such articles in new
treaties, we did not consider that it was expedient to reopen the
treaty on this point, which it would have required, before bringing it
before the
House.
I
was asked by both hon. Gentlemen who spoke about teachers. A professor
from Moldova was quoted. We agreed to Slovenias request to
retain a teachers article similar to the one that used to
appear in the 1981 Yugoslavia convention upon which this treaty is
based. Although it is no longer in the OECD model, this provision is in
several UK treaties. It allows teachers to work in the UK and prevents
them from being taxed twice for a period of two years. They do pay tax
to their home nation. This is not an unusual measure.
The OECD
wording on pension scheme contributions, which we normally seek to
include in our treaties, goes wider than this and includes pension
arrangements made by the self-employed. Slovenia was unable to agree to
the full OECD wording because the treaty provision operates on the
principle of reciprocity and at the time it was negotiated
Slovenias domestic law on the tax treatment of private pension
scheme contributions was still developing. We do not negotiate these
treaties very often, but when we do, we have to do so within the
context of the law within each country as it
stands.
The
hon. Member for South-West Hertfordshire asked for the background to
the rate of withholding tax on dividends in the case of Slovenia. It is
again a product of negotiation. Rates are as good as other EU countries
have achieved. I compliment officials on the work they have
done.
Article 5 in
the Moldovan treaty, on the treatment of services, represents a
concession to Moldova. We were prepared to make that in the interests
of achieving a balanced agreement. We do not believe the impact is
great, as the service provider needs to spend six months in a country
in order to trigger the permanent establishment threshold. The wording
does not appear in the OECD model but we have agreed it with several
other countries.
Although
Slovenia has agreed to honour the treaty obligations of the former
Yugoslavia it is appropriate now to have a new treaty that recognises
Slovenias status as a member of the EU and one that reflects
the growing importance of our bilateral relationship. Members
will be aware that Slovenia has just completed a successful presidency
of the EU and was the first new member state to hold the presidency.
There are hon. Friends of mine who take a close interest in the former
Yugoslavia.
The
hon. Member for South-West Hertfordshire pressed me on a number of
points and I think I have covered most of them. He asked about progress
we were making with other countries. We have held negotiations with
Croatia, Macedonia and Serbia. A new agreement with Macedonia came into
force this year. Talks with Croatia and Serbia are continuing. There is
other work with Montenegro and Bosnia and Herzegovina, and those two
states are continuing to honour the previous agreement. We still have
no treaty with Kosovo, but in the longer term we hope to agree modern
treaties with all the former Yugoslav republics as and when our
resources
allow.
Dr.
Pugh: Are there supposed to exist treaties with regard to
the British overseas territories, or is some other arrangement in
place, such as a document similar to the orders we are
considering?
Jane
Kennedy: The hon. Member for South-West Hertfordshire
pointed out that we have another debate similar to this on Thursday, in
which we will consider precisely that.
In the case
of the USSR and of the former Yugoslavia, there were agreements in
place. As I said at the outset, the treaties we are considering today
build on existing agreements; they are not completely new documents.
The main difference is that they will bring real improvements for UK
residents, including the elimination of withholding tax on dividends
paid to companies that hold a 20 per cent. share of the subsidiary
company paying the dividends, compared with a maximum withholding tax
rate of 5 per cent. permitted by the current convention with
the former Yugoslavia. There are a number of other benefits, but I will
not detain the Committee by mentioning all of them.
Moldova is
one of a group of former Soviet countries that chose not to adhere to
the treaty obligations of the former USSR after independence, and we
have so far agreed new treaties with several members of that group,
including Georgia, Lithuania, Estonia and Latvia. I can see a
ministerial visit to see exactly how these treaties are operating going
down extremely well at this time of
year.
The
protocol with New Zealand is very straightforward. I heard what the
hon. Member for South-West Hertfordshire said about our tax authorities
and regimes being very similar. Regarding Bermuda, we are negotiating
tax information exchange agreements with our Caribbean overseas
territories and have already signed such an agreement with Bermuda. I
hope that reassures the hon. Member for Southport. I am grateful to my
hon. Friends for attending on such a beautiful day, and hope that these
three double taxation agreements will see their way on to the statute
book.
Question
put and agreed to.
Resolved,
That
the Committee has considered the draft Double Taxation Relief and
International Tax Enforcement (Taxes on Income and Capital) (Moldova)
Order 2008.
Resolved,
That
the Committee has considered the draft Double Taxation Relief and
International Tax Enforcement (Taxes on Income and Capital) (Slovenia)
Order 2008.[Jane Kennedy.]
Resolved,
That
the Committee has considered the draft Double Taxation Relief and
International Tax Enforcement (Taxes on Income and Capital) (New
Zealand) Order 2008.[Jane
Kennedy.]
Committee
rose at seven minutes to Eleven
oclock.