The
Committee consisted of the following
Members:
Chair:
Mrs
Linda Riordan
†
Anderson,
Mr David (Blaydon)
(Lab)
†
Crockart,
Mike (Edinburgh West)
(LD)
†
Gauke,
Mr David (Exchequer Secretary to the
Treasury)
†
Glass,
Pat (North West Durham)
(Lab)
†
Hamilton,
Mr Fabian (Leeds North East)
(Lab)
†
Hilling,
Julie (Bolton West)
(Lab)
†
James,
Margot (Stourbridge)
(Con)
†
Leslie,
Chris (Nottingham East)
(Lab/Co-op)
Love,
Mr Andrew (Edmonton)
(Lab/Co-op)
†
Mann,
John (Bassetlaw)
(Lab)
†
Sandys,
Laura (South Thanet)
(Con)
Shepherd,
Mr Richard (Aldridge-Brownhills)
(Con)
†
Skidmore,
Chris (Kingswood)
(Con)
†
Smith,
Miss Chloe (Norwich North)
(Con)
†
Smith,
Henry (Crawley)
(Con)
†
Swales,
Ian (Redcar)
(LD)
Wilson,
Sammy (East Antrim)
(DUP)
†
Wollaston,
Dr Sarah (Totnes) (Con)
Glenn
McKee, Committee Clerk
†
attended the Committee
Fourth
Delegated Legislation
Committee
Tuesday 2
November
2010
[Mrs
Linda Riordan
in the
Chair]
Draft
Double Taxation Relief and International Tax Enforcement (Oman) Order
2010
4.30
pm
The
Exchequer Secretary to the Treasury (Mr David Gauke):
I
beg to move,
That the
Committee has considered the draft Double Taxation Relief and
International Tax Enforcement (Oman) Order
2010.
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.
Mr
Gauke:
It is a pleasure to server under your chairmanship,
Mrs
Riordan.
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,
it does not prevent Switzerland agreeing at some future date to provide
more information automatically or spontaneously.
In
conclusion, I commend these orders to the Committee and am happy to
answer any questions that hon. Members may have on their
provisions.
4.36
pm
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
circumstances; for example, the UK authority cannot use Swiss data for
certain things other than as prescribed in the agreement and vice
versa.
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.
4.45
pm
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
problems that my family business had in taking goods, particularly
vehicles, into and across Austria, even when it was an EU member. It is
a country that clearly likes to have its cake and eat it. When taxing
British hauliers entering the country, it likes to claim a higher
environmental standard than the rest of the EU, which is a way of
restricting fair trade between our two countries.
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?
4.51
pm
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.
That was also a pragmatic response, and the right thing to do,
notwithstanding that it was done by the previous Government. Indeed, I
would say that the UK is fully committed to its agreement with
Liechtenstein, and the announcement of talks with Switzerland does not
change that. It is worth pointing out that the Liechtenstein disclosure
facility is proving to be successful, and many individuals have already
come forward voluntarily with their disclosures, ahead of the formal
introduction of the process by Liechtenstein’s financial
intermediaries. HMRC agreed to publish the number of Liechtenstein
disclosure facility registrations, and 876 registrations were received
by 30 September 2010. As far as Switzerland is concerned, the response
is pragmatic and we have entered into negotiations. We will obviously
ensure that the House and the Committee are informed of progress in
that
area.
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.
I
hope that those comments help to provide a bit more information, and in
the light of that, I hope that the Committee will be content to allow
the orders to
progress.
Question
put and agreed to.
Resolved,
That
the Committee has considered the draft Double Taxation Relief and
International Tax Enforcement (Oman) Order
2010.
Resolved,
That
the Committee has considered the draft Double Taxation Relief and
International Tax Enforcement (Switzerland) Order 2010.—(Mr
Gauke.)
R
e
solved,
That
the Committee has considered the draft Double Taxation Relief and
International Tax Enforcement (Singapore) Order 2010.—(Mr
Gauke.)
Resolved,
That
the Committee has considered the draft Double Taxation Relief and
International Tax Enforcement (Mexico) Order
2010.— (Mr
Gauke.)
Resolved,
That
the Committee has considered the draft Double Taxation Relief and
International Tax Enforcement (Austria) Order
2010.— (Mr
Gauke.)
5.5
pm
Committee
rose.
