The Legislative Council of Hong Kong SAR passed the Inland Revenue (Amendment) Bill 2013 on 10 July 2013. The Bill allows Hong Kong to enter into tax information exchange agreements (TIEAs). There is an increasing emphasis by the OECD and other organizations on the exchange of tax information and Hong Kong therefore needs to show compliance with current international practices by expanding the number of agreements that provide for the exchange of information.
Under the previous provisions of the Inland Revenue Ordinance (IRO), the Inland Revenue Department (IRD) of Hong Kong was only permitted to exchange information regarding a taxpayer with the tax authority of a jurisdiction with which Hong Kong had concluded a double tax treaty. But according to the latest international standard on tax transparency, a jurisdiction should be prepared to exchange information in respect of taxpayers on a reciprocal basis pursuant to an income tax treaty (treaty) or a standalone tax information exchange agreement (TIEA). Furthermore, a jurisdiction’s preference for a treaty over a TIEA cannot constitute a reason for not entering into a TIEA if requested by the other jurisdiction. However, Hong Kong was unable to enter into TIEAs without amending its tax law. The new law therefore amends certain provisions in the IRO and the Inland Revenue (Disclosure of Information) Rules which may allow Hong Kong to enter into standalone TIEAs.
According to the new law the Government of Honk Kong will be able to enter into an arrangement with the government of a territory outside Hong Kong for exchanging of information in relation to any tax imposed by the laws of Hong Kong. The new law enables Hong Kong to comply with the standard terms of a TIEA so that the scope of information exchanged covers information in the possession of a taxpayer and in their control. However, the new law does not clearly state what constitutes information in the “control” of a taxpayer. Under the new law, information that relates to a period before a relevant arrangement has come into operation can nonetheless be exchanged under certain conditions. The applicable conditions are that the information is relevant for the carrying out of the relevant arrangement, or relevant for tax assessments in respect of any period that starts after the relevant arrangement has come into operation.