I beg to move,
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Ecuador) Order 2024.
It is a pleasure to serve on this Committee with you as Chair, Mrs Harris.
The order before the Committee gives effect to a first-time double taxation convention with Ecuador. It will provide a clear and fair framework for the taxation and administration of cross-border transactions between the United Kingdom and Ecuador, benefiting businesses and the economies of both countries by removing barriers to cross-border trade and investment. The DTC is based mainly on the OECD model tax convention, which contains a set of internationally agreed principles that make DTCs easier for businesses to understand and for tax administrations to apply.
I turn now to some of the main features of the DTC. It provides limits on the withholding taxes that can be charged on dividends, royalties and interest, which in many circumstances are less than the tax rates applied under Ecuador’s domestic law. There are specific exemptions for dividends and interest paid to pension funds and for interest paid to financial institutions, which will be of benefit to UK pension funds and to banks with interests in Ecuador.
The DTC limits the circumstances in which the trading profits of an enterprise based in one country may be taxed in the other country. That will be welcomed, for instance, by United Kingdom businesses looking to provide services to customers in Ecuador, such as in the life sciences, infrastructure and financial services sectors, as it will ensure that businesses will not face Ecuadorian withholding taxes on some payments for those services.
The agreement contains all the minimum standards introduced by the joint OECD and G20 project on base erosion and profit shifting. Those standards ensure that DTCs are not used to avoid or evade tax, and include a statement in the preamble that it is not a purpose of a DTC to create opportunities for tax evasion and avoidance, and a principal purpose test that denies treaty benefits in cases of abuse.
Another anti-avoidance rule included in the new treaty is a tie-breaker provision for determining corporate residence based on agreement by the competent authorities of each country. The DTC also allows for the exchange of information between the two countries to facilitate tax transparency and provides for mutual assistance in the collection of tax debts.
Together, these features strengthen both countries’ defences against tax avoidance and evasion. The order includes dispute resolution provisions that go beyond the minimum standard set out in the final recommendations of the BEPS project by providing that, where a taxpayer considers that the DTC has not been applied correctly, they can present their case to either tax authority, and not just where they are resident.
In summary, this agreement is one that the UK can welcome, fulfilling a long-held ambition to conclude a DTC with Ecuador and filling another gap in the UK’s network of DTCs in Latin America. It will provide a stable, long-term framework within which trade and investment between the United Kingdom and Ecuador can flourish. I commend the order to the Committee.