HSBC Securities Calls For Offshore Profits Tax On Hong Kong Companies

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

04 December 2001

Hong Kong based brokerage, HSBC Securities, has warned that the government should consider taxing the offshore profits of companies based in Hong Kong if it does not want to see its tax revenue leaking away when the Chinese mainland joins the World Trade Organisation.

Under the present territorial taxation system, only income and profits derived from business activity carried out in the SAR are taxable. However, HSBC Securities has criticised this as outdated, warning that the rise in business activity and trading over the internet, and the likely increase in mainland investment by Hong Kong companies following WTO accession, will see the territory's government losing out as Hong Kong companies reinvested profits there as opposed to repatriating them.

Citing the example of Singapore, where global income is taxed, the broker reassured that the impact of a change in the tax regime was unlikely to be massive: 'Even if Hong Kong adopts Singapore's tax treatment of global income, the main implication for most companies in the territory would probably be higher professional tax-consultation fees, as Hong Kong has double-taxation treaty agreements with most major countries,' it argued in the South China Morning Post.

However, many tax experts disagree, and have warned that any change in the jurisdiction's simple, low tax regime could discourage foreign companies from establishing headquarters in the territory, and increase government administration costs, thus reducing tax revenues still further.

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