Hong Kong’s updated strategy on automatic exchange of financial accounting information

To enhance tax transparency and combat crossborder tax evasion, the Organization for Economic Co-operation and Development (OECD) published the Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI) in July 2014. 

In June 2016, the necessary legal framework on implementing AEOI in Hong Kong was enacted and became effective. 

As a second wave, in March 2017, the HKSAR Government introduced the Inland Revenue (Amendment) (No. 3) Bill 2017 to the Legislative Council. The HKSAR Government is proposing to accelerate the expansion of Hong Kong’s AEOI network by increasing the number of “reportable jurisdictions” from 2 (i.e. Japan and the UK) to 75 jurisdictions (including China and Singapore).

Following the proposal, 

• Financial institutions (FIs) in Hong Kong will be required to conduct due diligence procedures and to identify/collect information on accounts of tax residents in these 75 jurisdictions (including both prospective and confirmed AEOI partners of Hong Kong), and then furnish the information so collected to the Hong Kong tax authority from 2018 onwards.

• For the prospective AEOI partners, automatic exchange will be conducted with them only when comprehensive avoidance of double taxation agreements or tax information exchange agreements are in place to provide the basis for exchange, together with bilateral AEOI agreements signed on that basis. 

The OECD allows jurisdictions to conduct AEOI on either a bilateral or multilateral basis. The bilateral approach involves the signing of a bilateral Competent Authority Agreement (CAA) for AEOI with other jurisdictions with the comprehensive avoidance of double taxation agreement (CDTA) or tax information exchange agreement (TIEA) as the basis. The multilateral approach involves the signing of the multilateral CAA with the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (Multilateral Convention) as the basis. Among the 100 jurisdictions committed to AEOI, 90 have participated in the Multilateral Convention (either as a signatory or as a territory covered by way of territorial extension). At present, Hong Kong is not covered by the Multilateral Convention and adopts a bilateral approach in the implementation of AEOI. To expand Hong Kong’s AEOI network more quickly, the HKSAR Government has made it clear that it will actively consider the possibility of extending the application of the Multilateral Convention to Hong Kong.

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