Why the UK must reassess its tax treaties with developing economies

 
Roger Mullin
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The UK is giving with one hand and taking away with another (Source: Getty)

Before becoming a Member of Parliament, I undertook 27 international assignments, mainly in the developing world - 16 of them were in Africa.

Often my funding would be from some source of aid, whether from the charitable sector, a UN agency or a developed country’s aid programme.

But as I became more and more interested in the economics of the developing world, I realised that well-developed countries such as the UK were often giving aid with one hand, but taking more away with the other; creating a dependency on aid, rather than liberating countries to take effective control of their own economies.

Read more: Fighting poverty with trade not aid

That is why this week I am putting forward a new law in Parliament to help poorer countries collect their fair share of tax from UK companies that mine their natural resources or do business there.

Almost everyone I talk to can agree that poorer countries need more money for public services like schools and hospitals.

In the UK we campaign to keep school class sizes below 30. However, Stella Machinjiri, a teacher in Malawi, a country close to many Scots' hearts, has a staggering 285 children in her class.

Aid money – whether from governments or charitable individuals – clearly helps. However the only long-term, sustainable solution is to help developing countries raise more of their own through tax, so they have money to spend on hiring teachers, providing healthcare and fighting poverty.

At the moment multinationals can get away without paying their fair share. We’ve seen it here, with the likes of Google and Starbucks, but the effects are much worse in developing countries, where they are even more reliant on business taxes to pay for public services.

One little-known mechanism which allows companies to lower their tax bill is through tax treaties – which are bilateral agreements between two countries, which set out which country has the right to tax money moving between the countries.

Shockingly, the UK’s tax treaty with Malawi was signed in 1955 – while Malawi was a British colony called Nyasaland – yet is still in force today, and places strong restrictions on Malawi’s ability to tax UK companies operating there. It’s so old it doesn’t even cover taxation of TV related goods.

Unfortunately it’s not just the old treaties that are the problem. The charity ActionAid has analysed over 500 tax treaties signed since 1970 and found treaties have become increasingly bad for poorer countries over time.

They also found 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. This needs to change.

Our government rightly spends 0.7 per cent of our national income on aid to poorer countries, and also does some good work to help developing countries raise more tax – including providing technical assistance to poorer governments, and promoting tax transparency internationally. However, these efforts are being undermined by a global web of unfair tax treaties.

The principle behind the law that I am presenting to Parliament is simple – it is about joined up government.

This new law would require the UK government to assess the effect its tax treaties have on developing countries to make sure they support efforts to eradicate poverty.

I think that is common sense so I am calling on Treasury minister Jane Ellison to support my proposal, and make sure the UK’s tax treaties help poorer countries stand on their own two feet and find a sustainable route out of poverty.

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