Inland Revenue (Amendment) Bill 2013 introduced

The Bill

The Inland Revenue (Amendment) Bill 2013 was introduced into the Legislative Council on April 24. The Bill aims to enable Hong Kong to enter into tax information exchange agreements (TIEAs) with other jurisdictions where necessary and to enhance the existing exchange of information (EoI) arrangements under comprehensive avoidance of double taxation agreements (CDTAs).

Under the current provisions of the Inland Revenue Ordinance (IRO), Hong Kong can only exchange tax information with another jurisdiction under the framework of such a bilateral CDTA. However, under the latest international standard on tax transparency, a jurisdiction should make available both CDTAs and TIEAs as instruments for EoI.

Accordingly, the Hong Kong Government is under intense international pressure to amend the IRO to put in place a legal framework which enables Hong Kong to enter into TIEAs, as an effort to demonstrate Hong Kong's continued commitment to enhancing tax transparency.

The Legislative Bill seeks to make amendments on the IRO to:

• To enable Hong Kong to conclude standalone TIEAs and expand the coverage of tax types for EoI (from income or similar tax to any tax) under both CDTAs and future TIEAs. In all of the existing CDTAs of Hong Kong, the scope of EoI is restricted to information related to the types of tax covered under the CDTAs, which are mainly income tax. The Bill indicates that the government may in future enlarge the scope of information relating to the types of taxes to be exchanged under a CDTA.
• To extend the powers of the Inland Revenue Department (IRD) to obtain information that is in a persons control apart from that in his possession.
• To allow the IRD to disclose information (which may include information relating to a period before the commencement of the relevant arrangements) that relates to the carrying out of the relevant arrangements (i.e., a CDTA or a TIEA) in respect of any period that starts after the relevant arrangements have come into operation.

Comment

The Bill, if being enacted into law, will provide an additional mechanism for tax information exchange with other jurisdictions. Notwithstanding that the Government will continue to adopt the existing safeguards to protect taxpayers' privacy and confidentiality of information exchanged under both CDTAs and future TIEAs, taxpayers with crossborder operations/transactions should pay attention to the new development in EoI arrangements in Hong Kong and assess its potential impact on their tax risk management. Whenever necessary, taxpayers should also seek the advice from the tax professionals.