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| No.4 April, 2010 |
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HK enters new phase of tax policy |
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Hong Kong has entered a new phase in supporting international efforts to enhance tax transparency and remain a competitive regional business hub, according to the Special Administrative Region’s most senior taxation official.
The Commissioner of Inland Revenue, Mr Chu Yam-yuen, said laws which came into force in March enabled Hong Kong to play its part in helping to avoid double taxation scenarios for investors under the latest Organisation for Economic Co-operation & Development (OECD) international standard for exchange of information between jurisdictions.
The Inland Revenue (Amendment) Ordinance 2010 - enables the Inland Revenue Department to collect and transfer taxpayer information to partner jurisdictions, even if the department has no domestic tax interest in such information, to address double taxation issues.
To protect taxpayers' privacy and confidentiality, the Inland Revenue (Disclosure of Information) Rules also came into operation at the same time, Mr Chu said.
The rules stipulate a notification and review mechanism, and only an Inland Revenue Department directorate officer can approve an information request.
The rules also set out the information a treaty partner must provide to ensure the information requests are justified, specific and relevant. These rules were developed after consultation with lawmakers, experts and business representatives.
The director of the OECD's Centre for Tax Policy & Administration in Paris, Jeffrey Owens, has praised Hong Kong for building its position as an international financial centre on the basis of free markets, low tax rates and a transparent tax system.
"Under the organisation's criteria, Hong Kong is not considered a tax haven," Mr Owens said.
The new laws shows Hong Kong is taking a big step forward to align with international standards on exchange of information, Mr Chu noted. It will not only help the city expand its network of comprehensive agreements for avoidance of double taxation, but also significantly enhance its position as a transparent tax jurisdiction.
"The agreement will eliminate double taxation instances encountered by investors doing business in each other's jurisdictions, and bring about tax savings and certainty in tax liabilities in connection with cross-border economic activities," Mr Chu said.
"A treaty will help promote bilateral investment, and the exchange of technology, people and expertise between two places," Mr Chu continued.
Tax experts have welcomed the move. Marcellus Wong, chair of the Taxation Institute of Hong Kong's Tax Policy Committee, said the laws would strengthen Hong Kong’s competitiveness against other Asian countries, such as Singapore.
Mainland enterprises can also benefit from the agreements if they set up a business in Hong Kong and use the city as a stepping stone for their outbound investments, he added.
Mr Chu said Hong Kong's next hurdle was to sign at least 12 comprehensive agreements adopting the new standards soon to avoid Group of Twenty (G20) sanctions.
"We have been negotiating with our partners and achieved good progress. Recently we signed agreements with Brunei, the Netherlands and Indonesia. We have also reached consensus with Austria, Hungary, France, Ireland, Liechtenstein and Japan.
"We have also started negotiations with Czech Republic, Denmark, Italy, Kuwait, Macau, Pakistan, Spain, Switzerland, United Arab Emirates and the UK. For the five existing treaty partners, we are negotiating with them to upgrade the Exchange of Information Article to the new version. Our target is to sign the new comprehensive agreement with all our trade partners," he said.
"Our policy is not only to focus on exchange of information but we strive to negotiate the best deals for our taxpayers."
The G-20 finance ministers and central bank governors have said they would start to impose sanctions on uncooperative tax jurisdictions from last month. However, Mr Chu said Hong Kong has been updating the OECD on the city's progress in signing agreements.
He said Hong Kong faced challenges when negotiating with other countries, such as differences in defining "resident" and limitation of benefits.
"But it's encouraging to note some countries, having learned about the passage of our law to liberalise our exchange of information arrangement, have initiated or resumed negotiations with us. I am hopeful we will able to meet the organisation's 12-agreement threshold in the near future," he said.
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