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Hong Kong Tax News Flash 

Jul 2009, Issue 7 Expand All Collapse All


A step towards liberalising the exchange of tax information in Hong Kong: The Inland Revenue (Amendment) (No.3) Bill 2009
  
As reported in our March 2009 Issue 3 and June 2009 Issue 5 of Hong Kong Tax News Flashes, there have been international pressures for Hong Kong to adopt the international standard of tax transparency.
   
In February this year, the Financial Secretary announced the 2009/10 Fiscal Budget which contained a proposal to amend the existing provisions in the Inland Revenue Ordinance ("IRO") to accommodate the more liberal international standard of exchange of tax information endorsed by the Organisation for Economic Co-operation and Development ("OECD").
   
On 26 June 2009, Inland Revenue (Amendment) (No.3) Bill 2009 ("the Bill") was gazetted.  The Bill introduces the necessary legislative amendments to the IRO for Hong Kong to adopt the 2004 OECD model Exchange of Information ("EoI") article in concluding comprehensive double tax arrangement / agreement ("CDTA").  In this News Flash, we highlight the proposed legislative changes and share our observations on this latest development.
    
The proposed legislative changes
    
The proposed amendments to the IRO introduce a new section, section 49(1A), which empowers the Chief Executive to declare any arrangement made with a view of resolving double taxation will have effect on any Hong Kong taxes under the IRO as well as on the disclosure of information concerning taxation matters of another jurisdiction related to taxes covered by the EoI article of the arrangement that Hong Kong has concluded with that jurisdiction.
    
The existing provision of the IRO, section 51(4)(a), only grants power to the IRD to obtain information in regard to any matter which may affect any liability, responsibility or obligation of any person under the IRO.  The proposed legislative amendments will extend the information seeking power of the IRD so that it can obtain full information in regard to "any matter that may affect any liability, responsibility or obligation of any person... under the laws of a territory outside Hong Kong concerning any tax of that territory" if the following two conditions are met:

  1. there is a CDTA between Hong Kong and that territory and such CDTA is having effect under the newly added section 49(1A) of the IRO; and
       
  2. that tax is the subject of a provision of the CDTA that requires disclosure of information concerning tax of that territory.

Similarly, the IRD's power to obtain search warrant in certain cases (e.g. where there are reasonable grounds for suspecting that a person has made an incorrect return or supplied false information resulting in a understatement of his income or profits chargeable to tax under the IRO) as provided under the existing provision of section 51B(1) of the IRO will be extended by the proposed amendments such that it also applies to any tax of a territory outside Hong Kong if the above two conditions are satisfied.
   
Failure to provide the requested information, or obstructing / hindering the discharge of a search warrant under the existing provisions, is an offence under the IRO and is subject to a penalty.  By extending the information covered by the existing provisions to information required for the purpose of exchange of information under a CDTA, these offence / penalty provisions will also be applicable to information requests with regard to tax of other territories of which a CDTA having effect under the new section 49(1A) has been concluded with Hong Kong.
   
Provision of incorrect information for domestic tax purposes without reasonable excuse is also an offence under the existing provisions of the IRO.  Similarly, under the proposed amendments, a person who without reasonable excuse gives any incorrect information in relation to any matter or thing affecting the person's own liability (or the liability of any other person) to tax of other territories of which a CDTA having effect under the new section 49(1A) has been concluded with Hong Kong will also commit an offence.
   
PwC observations
   
We set out below a number of our observations about the proposed amendments and the issues involved in adopting the more liberal 2004 OECD model EoI article.
   
Information exchange under the existing CDTAs


Taxes covered by the Eol article

Tax information exchange agreements ("TIEAs")

Safeguards for protecting taxpayer's rights

Concluding remarks

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Download our Hong Kong Tax News Flash (Jul 2009, Issue 7)  (pdf file, 105KB) for your reference.
 
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Contacts
Peter Yu
Hong Kong Tax Leader
Hong Kong
Tel: +[852] 2289 3122 Email
Tim Leung
Partner
Hong Kong
Tel: +[852] 2289 3055 Email
Reynold Hung
Partner
Hong Kong
Tel: +[852] 2289 3604 Email
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