Hong Kong, Austria Sign Tax Pact

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

26 May 2010

Hong Kong has signed an agreement with Austria for the avoidance of double taxation and the prevention of fiscal evasion with respect to income and capital taxes.

This is the 11th comprehensive agreement for the avoidance of double taxation concluded by Hong Kong. It clarifies the taxing rights between the two jurisdictions, eliminates instances of double taxation on the same source of income, and lowers withholding tax rates on passive income from dividends and royalties.

The agreement applies to taxes on profits, salaries and property in the case of the Hong Kong Special Administrative Region; and, in the case of Austria, on income tax (Einkommensteuer), corporation tax (Körperschaftsteuer), land tax (Grundsteuer), tax on agricultural and forestry enterprises (Abgabe von land- und forstwirtschaftlichen Betrieben) and tax on the value of vacant plots (Abgabe vom Bodenwert bei unbebauten Grundstücken). It applies also to any identical or substantially similar future taxes.

Article 8 contains special provisions for shipping and air transport; profits from the operation of ships or aircraft in international traffic, including lease income and container leases, are taxable only in the country of the owner.

Interest income withholding tax is set at zero in the country of the payer, while dividend income is set at a maximum of 10%. Withholding tax on royalty income is similarly limited to a maximum of 3%.

Article 24 contains clauses on a Mutual Agreement Procedure, while Article 25 is a standard OECD Exchange of Information clause. However a protocol is added which requires the applicant for information to provide specific details as follows:

• The identity of the person under examination or investigation;
• A statement of the information sought including its nature and the form in which the applicant party wishes to receive the information;
• The tax purpose for which the information is sought;
• Grounds for believing that the information requested is held in, or is in the possession or control of a person within the jurisdiction of the other party;
• The name and address of any person believed to be in possession of the requested information; and
• A statement that the applicant has pursued all means available in its own territory to obtain the information, except those that would give rise to disproportionate difficulties.

The agreement will come into force after the completion of ratification procedures in both territories. In the case of Hong Kong, an order needs to be made by the Chief Executive in Council under the Inland Revenue Ordinance. The order is subject to negative vetting by the Legislative Council.

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