Question to the HM Treasury:

To ask Mr Chancellor of the Exchequer, what steps has he taken to ensure that the mandatory binding arbitration clause in the UK’s tax treaty with Lesotho cannot be used by UK businesses to demand of the Lesotho Government that it does not challenge tax avoidance by UK businesses operating in Lesotho.

Before any UK business can access mandatory binding arbitration under the new tax treaty with Lesotho, it must present a case to HMRC explaining why it believes Lesotho is not applying the tax treaty properly. Only if HMRC agrees that the UK business’s case is justified can the matter be taken up between HMRC and the authorities in Lesotho under the Mutual Agreement Procedure. Where benefits of the tax treaty are justifiably denied by Lesotho because the UK business has engaged in tax avoidance arrangements, a case would not be accepted into the Mutual Agreement Procedure and it could not therefore reach the arbitration process.

If a case is accepted into the Mutual Agreement Procedure, the authorities in the UK and Lesotho will discuss it and have two years to reach a mutually acceptable conclusion. Only if they do not succeed in that can the business request arbitration. If the case were to make it that far – and no case has so far ever been arbitrated under any of the UK’s treaties which include provision for it – an independent arbitration panel would consider the case on its merits.

The UK is committed to countering tax avoidance, including arrangements that seek to abuse the provisions of our tax treaties or the domestic law of either treaty partner. The new tax treaty contains a range of provisions, which the UK requested, that prevent treaty benefits being granted in cases of tax avoidance.