Whilst the report concluded that Hong Kong’s legal and regulatory framework generally ensures the availability of ownership information and accurate accounting records, however, some recommendations including the availability of Tax Information Exchange Agreements (“TIEAs”) have been made to ensure effective EoI in all circumstances. The Phase 2 review on Hong Kong’s progress toward full and effective EoI, i.e. an evaluation of Hong Kong’s implementation of the standard in practice, has started and the Global Forum’s Peer Review Group will meet in September 2013 to examine the report.
Currently the Hong Kong law only allows for EoI in cases of comprehensive double taxation agreements (“CDTAs”) but not under TIEAs. The Global Forum recommended that Hong Kong should enter agreements for EoI with all interested parties and ensure that the competent authority has the power to obtain all relevant information under all EoI agreements including TIEAs.
The Commissioner of Inland Revenue, who had previously indicated that Hong Kong would not enter into standalone EoI agreements, is under mounting international pressure for changing the legal framework to enable Hong Kong to enter into TIEAs with all relevant parties to ensure Hong Kong passes the Phase 2 review by the Global Forum.
Proposed legislative changes
On 24 April 2013, the government introduced the Inland Revenue (Amendment) Bill 2013 to the Legislative Council (“The Amendment Bill”). The Amendment Bill proposes to amend the Inland Revenue Ordinance and Inland Revenue (Disclosure of Information) Rules in relation to the EoI.
In brief, if the Amendment Bill becomes law, there will be the following changes to the current EoI regime in Hong Kong:
The government has indicated that the proposed changes to our legal framework is to ensure Hong Kong to comply with the latest international EoI standard and to demonstrate its efforts in enhancing tax transparency. Without a legal framework for entering into TIEAs, there is a risk that Hong Kong will be labelled as an uncooperative jurisdiction and there may be possible sanctions. A legal framework for TIEAs allows for an alternative instrument for EoI for Hong Kong to choose in entering into EoI arrangements with jurisdictions which have low incidence of double taxation. It is understood that Hong Kong’s priority is CDTAs. A Bills Committee has been formed to consider the Amendment Bill.