Tackling unfair tax treaties between developing countries and the UK, in UK Parliament today

Today the British Parliament will debate a Bill that tries to tackle unfair tax treaties between the UK and developing countries, some of which go back to the 1940s, sometimes when countries were still British colonies. It’s an initiative we very much welcome and we hand over to our friends at Action Aid UK to tell you more about it:

Today Roger Mullin MP is putting forward a Private Members’ Bill to help developing countries collect their fair share of tax from UK companies that do business there.

From mining natural resources to making clothes or growing food for supermarkets, UK companies have big businesses interests in some of the world’s poorest countries. Corporate tax avoidance has made national headlines here in the UK – with Apple, Amazon and McDonald’s among those accused of not paying their fair share. But the problem is even worse in developing countries, which tend to be even more reliant on corporation tax to fund public services like schools and hospitals.

If we are ever going to make progress towards eradicating extreme poverty, then poorer countries need to be able to raise more tax revenue to fund their own development. Aid, on its own, is not a sustainable solution.

That’s why ActionAid has worked with Roger Mullin to write this Bill. It is about promoting joined up Government to ensure UK tax policy also supports our international development objectives, by enabling poorer countries to raise more tax.

One way in which companies are able to lower their tax bill is through using tax treaties – bilateral agreements between two countries which set out how they can tax money flowing between them. Some of the UK’s most unfair tax treaties with developing countries date back to the 1940s – placing strong restrictions on their ability to tax UK firms operating within their borders. Some are so outdated that they were signed while the poorer country was still a UK colony – including our treaties with Malawi, Sierra Leone and Swaziland. The Malawi treaty is particularly shocking. Signed during the colonial era, it is so out of date that it doesn’t even cover taxation of TV related products. It also limits the ability of the Malawi Government to tax money being sent back to the UK.

Unfair tax treaties can prevent poorer countries from raising money they vitally need to fund their own development and fight poverty. However, it’s not just colonial-era treaties that are the problem. ActionAid analysed over 500 tax treaties signed since 1970 and found that treaties have become increasingly bad for developing countries over time. They also found that the UK, along with Italy, has the highest number of very restrictive tax treaties with developing countries, which prevent the poorer country from collecting tax.

The Bill, if passed, would require the UK Government to assess the affect its tax treaties have on developing countries to make sure they support efforts to eradicate poverty. To its credit, our Government already realises that sustainable tax revenues are vital for development. The Department for International Development (DFID) provides technical assistance to poorer governments to help them collect more tax revenue, and the UK has supported international efforts to increase tax transparency, such as legislating to allow for public tax reporting on a country-by-country basis. However, the UK’s web of unfair tax treaties undermines these efforts.

Treasury Minister Jane Ellison has the power to change this. I hope she will support the Bill, and make sure that our tax treaties support international efforts to tackle poverty, rather than creating a situation where the UK gives with one hand and takes away with the other.