On 5 December 2017, the EU Council released the EU list of non-cooperative jurisdictions for tax purposes (the EU blacklist). The list includes 17 non-EU jurisdictions (including Macau and Korea) which failed to meet the agreed tax good governance standards in one or more of the following three areas: (i) tax transparency, (ii) fair taxation and (iii) implementation of measures under the BEPS project. In addition, 47 non-EU jurisdictions (including Hong Kong) are identified as having deficiencies in their tax systems but have committed to address the deficiencies identified within a set timeframe. The EU Council also recommended a list of tax and non-tax defensive measures that may be imposed by the EU Member States on the non-cooperative jurisdictions.
The EU blacklist signifies that increasing tax transparency and protecting tax bases through fair taxation continue to be on top of the international tax agenda. It is understood that the OECD will issue its own list of non-cooperative jurisdictions by the end of this year. Although Hong Kong is not being listed as a non-cooperative jurisdiction this time, the HKSAR Government needs to keep up its efforts to (i) fulfil its commitments to the EU on implementing the AEOI by 2019 and amending the identified preferential tax regimes with a ring-fencing feature by 2018 and (ii) comply with the ever-changing international tax standards to avoid any potential reputational damage or defensive measures.
Hong Kong businesses, especially those currently benefitting from a preferential tax regime, need to be vigilant and proactive in assessing whether their existing business structures/operations are sustainable in light of the increasingly stringent international standards on tax transparency and tax good governance and if not, what actions or changes are required.