Hong Kong: The information exchange amendments to the Inland Revenue Ordinance

A bill is before the Legislative Council (the lawmaking body for Hong Kong) amending the Inland Revenue Ordinance to empower the department to enter into information exchange agreements with other countries or tax jurisdiction for exchange of information relating to various forms of tax, without first concluding a double tax agreement with that jurisdiction. The information to be gathered will not be confined to taxes administered in Hong Kong; it will also cover taxes that are not levied in Hong Kong, for example capital gains tax, value added tax, etc. The exact scope of the legislation is yet to be debated, but for sure the scope will be considerably widened. 

One of the most important aspects is probably capital gains tax and dividend withholding tax. Dividends are not taxable in Hong Kong and therefore the Inland Revenue Department has no information on details of dividends paid, likewise with capital gains, although in some instances a seemingly capital asset can be subject to profits tax in Hong Kong because the transaction is regarded as a trading transaction. The Inland Revenue will be empowered to request information on these. 

The reach of the amendment is still being debated; at the moment it is not confined to the geographical location of Hong Kong. There is some attempt to limit the power to the geographical location of Hong Kong. The widened scope will most likely also be applied to countries that Hong Kong already has double tax agreements. 

It is expected that the enactment of the amendments will enable the Hong Kong government to enter into tax information exchange agreements with countries that it still have not yet had a double tax agreement in place. 

By enacting tax information exchange legislation, the international reputation of Hong Kong will be enhanced and it is likely that more companies from more countries will be willing to set up companies in Hong Kong, especially those who have previously been reluctant because of the impression that Hong Kong is a tax haven. 

However, that power needs to have proper balance, and checks need to be put in place to ensure fair and equitable administration. Progresses will be reported in subsequent articles in PRISM. 

In the meantime, clients and business associates who have any questions should contact their engagement partner within our firm.