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During a recent speech, the Secretary for Financial Services and the Treasury, K C Chan, reiterated Hong Kong's commitment to meeting the international standards on tax transparency, and to implementing the Organisation for Economic Co-operation and Development's (OECD's) base erosion and profits shifting (BEPS) package.
In his speech on October 6 to the Asia-Oceania Tax Consultants' Association International Tax Conference, Chan confirmed that one of Hong Kong's key priorities over the past two years has been the automatic exchange of financial account information in tax matters (AEOI).
He pointed out that, after OECD's release of the AEOI standard, Hong Kong pledged its support in September 2014 for implementing the new global standard on a reciprocal basis with appropriate jurisdictions, with a view to commencing by the end of 2018. Following the passage of legislation in June this year, the legal framework required can now be put in place.
Chan noted that Hong Kong has already begun to approach a few of its tax treaty partners for AEOI negotiations, and aims to publish its first batch of reportable jurisdictions for AEOI purposes by the end of this month.
"Subject to vetting of the list by our Legislative Council, financial institutions will start conducting the due diligence procedures to identify and collect information of the financial accounts in 2017," he added. "They will furnish the information to the Inland Revenue Department in 2018 for transmission to the AEOI partners concerned."
Chan reiterated that "timely implementation of AEOI is important for Hong Kong to meet the international standard and uphold our reputation as an international financial center. We are fully aware of the international aspiration to move towards a widespread automatic exchange of information, and are mapping out a comprehensive program for AEOI negotiation from 2017 onwards."
He also said that the OECD's BEPS package "has set in motion the wheels to tighten the screws of international tax rules. All jurisdictions are expected to implement the BEPS package. Hong Kong is prepared to join this drive."
In June this year, Hong Kong accepted the OECD's invitation to participate in the BEPS project as an Associate. As such, Hong Kong will participate on the remaining standard-setting under the BEPS project and review and monitor measures implemented from the BEPS package. It will support the review of the four BEPS minimum standards – on harmful tax practices, tax treaty shopping, country-by-country reporting, and cross-border tax dispute resolution.
Chan disclosed that Hong Kong's Government "has been conducting analysis on the BEPS package, with a view to mapping out our work priorities. We will consult the industry shortly on the strategy for implementing the relevant proposals and prepare for taking forward the necessary legislative amendments."
"For a jurisdiction like Hong Kong, which has been maintaining a simple tax regime," Chan continued, "implementation of the BEPS package will give rise to new rules and regulations, thus inevitably complicating our tax regime. How to strike a balance between compliance with international standards and minimizing compliance burdens of taxpayers is a crucial issue. In taking forward the exercise, we would listen to the views of the stakeholders, make reference to the overseas practices, and handle the implementation issues carefully."
"In coming up with the timelines for implementation [of BEPS measures], we will take into account relevant factors such as the characteristics of the domestic tax regime and the envisaged magnitude of legislative changes involved."
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