Hong Kong Now Allowed to Sign Standalone Tax Information Exchange Agreements

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Aug. 2 – The Legislative Council of Hong Kong recently passed the Inland Revenue (Amendment) Bill 2013 (hereinafter referred to as the “Bill”) on July 10, which will enable Hong Kong to directly enter into tax information exchange agreements (TIEAs) with other jurisdictions. The Bill also enhances and makes more efficient the exchange of information related to all of Hong Kong’s comprehensive double taxation avoidance agreements (CDTAs) with other jurisdictions.

The concept of a TIEA was initially developed by the Global Forum Working Group on the Effective Exchange of Information for the Organization of Economic Cooperation and Development (OECD) to help facilitate cooperation among nations with regards to tax matters, and to also address harmful tax practices. As such, TIEAs typically are concluded to enhance and streamline the provision of any relevant information (i.e. information regarding company registration, local bank accounts, and company shareholders, etc.).

TIEA-contracting parties are also required to assist each other in matters relating to tax investigations or prosecutions.

Further, the latest international exchange of information standards set by the Global Forum on Transparency and Exchange of Information for Tax Purposes of the OECD (hereinafter referred to as “Global Forum”) requires that all of its members – in addition to various other jurisdictions identified by the Global Forum – pass a review based on the quality and practical implementation of their respective legal and regulatory frameworks regarding information exchange.

To pass the reviews, a jurisdiction must have both a CDTA and a TIEA in effect as instruments for information exchange.

Before the passage of the Bill, Hong Kong was only able to exchange tax information with jurisdictions that it has entered into a CDTA with. Currently, Hong Kong has entered into CDTAs with 29 other jurisdictions, including 11 of its top 20 trading partners.

“Only through [passing this Bill] will Hong Kong be able to continue with its efforts in negotiating CDTAs with existing as well as potential partners, whilst providing in place a legal framework for TIEAs for Hong Kong to meet its international obligations,” noted Professor K.C. Chan, Hong Kong’s Financial Services and Treasury Bureau Secretary.

Further, the Hong Kong government has announced that the Bill will relax the tax types to be covered by the exchange of information arrangements under its CDTAs and future TIEAs, and that it also enables the Commission of Inland Revenues to disclose any related information in response to an exchange of information request if the Commission believes that such information relates to tax assessments regarding any period dated after any of the relevant CDTAs or TIEAs have come into operation.

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