It is a pleasure to serve on this Committee with you as Chair, Dr Huq. The orders before us give effect to the suspension of the 2018 UK-Belarus and 1994 UK-Russia double taxation conventions in UK law. The orders revoke earlier legislation that previously gave effect to the treaties in UK law. The effect of the orders is that UK tax law will apply as if no treaty were in place with those countries from the new tax year, which begins on 1 April for corporation tax and on 6 April for income tax and capital gains tax, and for the equivalent taxes of Russia and Belarus.
The UK will tax UK-sourced income and gains without reference to the limits agreed in the treaty. Unilateral relief is available in UK domestic law to UK resident taxpayers, meaning that when a UK resident taxpayer has paid foreign tax, credit is available for the foreign tax already paid. That provides protection to UK resident taxpayers against the harmful effects of double taxation, and the rules apply wherever income or gains are not covered by a double taxation convention. However, benefits will no longer be available to residents of Russia or Belarus. The UK has decided to suspend the treaties in response to the actions of those countries, which have not been honouring their obligations under these conventions for some time.
In August 2023, Russia partially suspended its tax treaties with 38 countries, including the UK and other G7 countries that it termed “unfriendly.” Russia left in place only definitional and some administrative provisions, suspending all the articles concerning taxation of income, including those that contain limits on what can be taxed at source.
In March 2024, Belarus took action similar to Russia’s in relation to 27 countries, including the UK. It partially suspended the treaties, including the UK-Belarus treaty. Belarus suspended articles dealing with dividends, interest and capital gains, and then introduced higher rates of tax targeting foreigners in its domestic law.
Both Russia and Belarus have claimed that their action is in response to sanctions. Sanctions imposed on Russia and Belarus are a legitimate response to the illegal invasion of the sovereign nation of Ukraine. The sanctions are a reasonable and lawful response to Russian aggression, and to Belarus’s support and enabling of Russia’s actions. Their action to suspend material provisions of our tax agreement is therefore totally unjustified in international law.