HK Not In OECD's Sights

by Mary Swire, Tax-News.com, Hong Kong

14 May 2010

Following a question in the Legislative Council concerning the risk of Hong Kong being placed on the Organisation for Economic Cooperation and Development’s (OECD's) list of tax havens, the Secretary for Financial Services and the Treasury, Professor K C Chan, explained why the government believed that such a risk did not exist.

The questioner pointed out that tax jurisdictions were required by the OECD to sign agreements with twelve other jurisdictions that enable the exchange of taxpayers' information. However, as the deadline was March this year and Hong Kong has not yet met such a requirement, he believed there might be the risk of sanctions being placed on Hong Kong, which would seriously affect Hong Kong's economic development and reputation.

Professor Chan replied that, in an article published in May 2009, the Director of the OECD's Centre for Tax Policy and Administration commended Hong Kong's efforts to comply with the international standards on tax transparency and exchange of information. Subsequently, in September 2009, the OECD confirmed that Hong Kong is not a tax haven and recognized its commitments to the OECD standards.

In fact, he said, since 1998, the government has been seeking to conclude comprehensive agreements for the avoidance of double taxation (DTAs) with Hong Kong’s major trading partners. In the past, a major obstacle to their conclusion was that Hong Kong could not adopt the OECD’s agreed standard for the exchange of information, due to the legal constraint on the information gathering powers of the Inland Revenue Department (IRD).

However, after the Inland Revenue (Amendment) Ordinance 2010 took effect in March 2010, allowing the IRD to collect and disclose a taxpayer's information in response to requests made by Hong Kong’s treaty partners even when the information is not required for domestic tax purposes, the government has been actively conducting further DTA negotiations.

In March this year, Hong Kong signed DTAs with Brunei Darussalam, the Netherlands and Indonesia respectively. Moreover, it has reached agreement on DTAs with seven further countries (including Austria, France, Hungary, Ireland, Japan, Switzerland and Liechtenstein).

At the same time, Hong Kong is also conducting DTA negotiations with a number of other countries, and discussing with existing treaty partners (including Mainland China, Vietnam, Belgium and Luxembourg) to upgrade the exchange of tax information clauses to the OECD standard.

As pointed out in the 2009-10 budget, Professor Chan continued, DTAs with major economies would help reduce tax burdens on individuals and enterprises and eliminate uncertainties over tax liabilities. This would improve the business environment and facilitate flows of trade, investment and talent between Hong Kong and the rest of the world, thereby enhancing Hong Kong's position as an international business and financial centre.

He repeated that Hong Kong has never been a tax haven and said that the government will continue to expand Hong Kong’s DTA network.

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