Hong Kong: Consultation on the Automatic Exchange of Information for Tax Purposes
In September last year, the Hong Kong Government confirmed its support for the implementation of the OECD’s new international standard on the automatic exchange of financial account information for tax matters.
The Government has now started a consultation process to enable it to ascertain locally held opinion on the implementation of international standards of information exchange, subject to adaptions appropriate for Hong Kong. It is proposed that the legislation would be introduced to apply the OECD standard of July 2014.
Included in the Government’s proposals are definitions of financial institutions, the nature and type of information to be obtained by financial institutions from their account holders, the due diligence and reporting obligations that financial institutions will be obliged to follow. In addition, the powers of the Hong Kong Inland Revenue Department (IRD) will be extended to enable the collection of material information for the financial institutions and the provision by the IRD of such information to the designated exchange of information partners.
Also included in the proposed legislation are penalty provisions and provisions to protect the confidentiality of information.
The consultation process is now open until 30 June 2015. It is intended that the draft legislation will be placed before the Legislative Council early in the New Year 2016. When indicating its support for the OECD’s new standard, Hong Kong expects to have the necessary domestic legislation in place by 2017, with the first exchanges taking place in the latter part of 2018.
This short timetable is recognised by the Secretary for Financial Services and the Treasury, Professor KC Chan who stated:
‘Hong Kong will adopt a pragmatic approach to legislate for all essential requirements of the OECD standard on automatic exchange of information, and will ensure effective implementation of the new standard. We have been engaging stakeholders in the financial industry in recent months to gauge their initial views on how (the automatic exchange of information) should be implemented in Hong Kong. We attach great importance to industry and user feedback so that we can put in place in a timely and effective manner the legislative and operational framework for (automatic exchange of information) in Hong Kong.’
The OECD standard designates financial institutions as banks, insurers, brokers, custodians and investment entities. These institutions will be obliged to identify Hong Kong non-resident account holders and maintain information on those account holders in accordance with the OECD due diligence procedures. It is envisaged that the information on those reportable accounts, would be provided by the financial institution to the IRD. It would then be the IRD that would automatically provide the material information to Hong Kong’s exchange of information partners. The exchange will take place on an annual basis.
Professor Chan confirmed that the exchange of information partners are those jurisdictions that have signed comprehensive double taxation agreements (CDTA) or tax information exchange agreements (TIEA) with Hong Kong. Professor Chan added:
‘In identifying (automatic exchange of information) partners from amongst our CDTA or TIEA partners, we will take into account their capability in meeting the OECD standard and in protecting data privacy and confidentiality of the information exchanged in their domestic law.’