Hong Kong Reviews Tax Info Exchange Limitations
The meeting of the Hong Kong Legislative Council's (LegCo) Panel on Financial Affairs held on February 4, 2013, looked at the jurisdiction's network of comprehensive double taxation agreements (CDTAs) and, in particular, at the need to amend its legislation with regard to tax information exchange (TIE) arrangements with other jurisdictions.
The Financial Services and the Treasury Bureau (FSTB) has committed to an expansion, in 2013, of Hong Kong's network of CDTAs with its trading and investment partners. At the same time, it has accepted the international trend of enhancing tax transparency and has confirmed that it will continue to ensure that Hong Kong's TIE arrangements are on a par with the international standard.
In November 2012, the FSTB briefed the LegCo Panel on the progress of its CDTA negotiations, but, in the latest meeting, consulted with the Panel on its detailed legislative proposals in relation to TIE arrangements. It is now looking to enhance the existing arrangements to meet international standards by putting in place a legal framework for also entering into tax information exchange agreements (TIEAs) with other jurisdictions, where necessary.
As at late January 2013, Hong Kong had signed CDTAs with 27 jurisdictions, all of which incorporated a TIE article. However, the FSTB's efforts to expand Hong Kong's CDTA network further have come up against delays from a number of its major trading partners, such as Australia, Germany, Russia and the United States.
It was said that it is becoming obvious that Hong Kong's negotiations with those trading partners could be helped by providing flexibility in the coverage of tax types and relaxing the limitation on TIE disclosure, under the CDTA framework.
On tax types, the FSTB has so far sought to restrict TIE to income taxes or taxes of similar character. It was noted that, even among those jurisdictions with which Hong Kong successfully concluded CDTAs, some of them, such as the Netherlands, the United Kingdom, France, Japan, Mexico and Italy, had already raised concerns during negotiations on its restrictive position in the coverage of tax types for TIE.
As for limitations on disclosure, Hong Kong currently adopts a highly stringent approach and will not entertain any request for any information relating to a period before the provisions of the relevant CDTA have taken effect. However, this has posed practical problems and fallen short of meeting CDTA partners' requirements.
Furthermore, the Global Forum on Transparency and Exchange of Information for Tax Purposes of the Organization for Economic Cooperation and Development has also recommended that Hong Kong should put in place a legal framework for entering into TIEAs. The latest international standard is that a jurisdiction should make available both CDTAs and TIEAs as instruments for TIE.