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Hong Kong Sets Out TIE Practice

by Mary Swire,, Hong Kong

03 February 2014

Following the amendment to Hong Kong's tax code enacted in July 2013, providing a legal framework for standalone tax information agreements (TIEAs) and enhancing arrangements for the exchange of information (EoI) with treaty partners, the Inland Revenue Department (IRD) has issued revised interpretation and practice notes to set out its current practice.

It is emphasized that Hong Kong has been very supportive of international efforts to promote transparency in tax administration. Hong Kong will seek to abide by the standard of transparency and exchange of information developed by the Organization for Economic Co-operation and Development (OECD), at the same time as respecting taxpayers' rights and protecting the confidentiality of information.

While the international standard requires a jurisdiction to make available both comprehensive double taxation agreements (CDTAs) and TIEAs as instruments for EoI with other jurisdictions, it will, given their additional benefits, remain a policy priority for Hong Kong to seek to conclude CDTAs with Hong Kong's trading and investment partners.

However, as the international standard is that preference for CDTAs over TIEAs cannot be a reason for refusing to enter into an EoI agreement, Hong Kong cannot preclude the possibility of entering into TIEAs, but not CDTAs, with some jurisdictions.

The tax code amendment of July last year therefore provides a legal framework for standalone TIEAs and enhances the EoI arrangements in respect of tax types and limitation on disclosure.

Its provisions enable arrangements to be made with a territory outside Hong Kong, not only for affording relief from double taxation, but also for exchanging information in relation to any tax imposed by the laws of Hong Kong; and enables the IRD to disclose information that relates to the carrying out of the relevant arrangements, or to tax assessment, in respect of any period that starts after the arrangements have come into operation.

It is noted that, as Hong Kong has never had any bank secrecy laws, the IRD has all along been empowered to collect information from banks for the purposes of administration of taxes under the tax code.

In addition, while both the OECD Model EoI provision and Model TIEA provide that a treaty partner cannot use a domestic tax interest requirement as a basis for declining to provide information, Hong Kong has already removed that requirement in 2010, and will also provide information even though the information is held by a nominee or a person acting in an agency or fiduciary capacity.

However, the exceptions explicitly allowed by the OECD to supply information are to be adopted in full in the EoI provision in Hong Kong's CDTAs or TIEAs concluded with other tax jurisdictions. For example, Hong Kong, when collecting information for the treaty partner, is obliged only to obtain and provide such information that the treaty partner could itself obtain under its own laws in similar circumstances.

Hong Kong may therefore refuse to provide information where the treaty partner is precluded by law from obtaining or providing information, or where the treaty partner's administrative practices result in a lack of reciprocity.

TAGS: tax | tax information exchange agreement (TIEA) | double tax agreement (DTA) | law | Organisation for Economic Co-operation and Development (OECD) | tax authority | agreements | legislation | transfer pricing | Hong Kong | legislation amendments

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