Nick Westra’s article in this week’s Sunday Morning Post (September 27th, 2009) must have pleased the IRS. If anything is going to raise concern amongst US citizens living in Hong Kong it is exactly this type of suggestion that a foreign authority will have unrestricted access to information. The article appears to ignore the fact that Hong Kong has no comprehensive double taxation agreement with the US as well as comments made by the Inland Revenue Department as to how it would approach a request by a treaty partner for information regarding a Hong Kong resident.
Whilst the Government will look to amend Section 51 Inland Revenue Ordinance to enable the Inland Revenue Department to obtain information that may be relevant to a person’s liability to tax in a territory outside Hong Kong, such information can only be given relative to an exchange of information article contained in a comprehensive double taxation arrangement; Hong Kong has no such arrangement with the US at the present time.
Furthermore, the requesting authority must be able to satisfy the Inland Revenue Department that the information is necessary for the enforcement of that country’s tax laws. The Inland Revenue Department has indicated that it would need to be convinced that there was an investigation in progress into the affairs of the taxpayer and that there were grounds to believe that the Hong Kong authorities had information relevant to that investigation – ‘fishing’ exercises will not be entertained.
It has also been indicated that the Inland Revenue Department will advise a Hong Kong resident of any such request and of any information it will release to a foreign authority.
In conclusion, whilst I do not condone tax planning through willful non-disclosure, it is wrong to suggest that any overseas tax authority will have unrestricted access to information held by the Hong Kong Inland Revenue Department.
