On June 9, 2010, the Inland Revenue Department (“the Department”) published its Departmental Interpretation and Practice Note No 47 “Exchange of Information under Comprehensive Double Taxation Agreements”. Although, as I have previously noted, the Department does not feel bound by its own Practice Notes, they nonetheless provide genuine guidance as to the normal Departmental practice.
Following the enactment of the Inland Revenue (Amendment) Ordinance 2010 (“IR(A)O 2010”) and the Inland Revenue (Disclosure of Information) Rules, Cap.112 BI (“Disclosure Rules”), the Department now has the authority to collect and disclose tax information, from whatever source is available to it, in order to comply with a tax treaty partner’s request for information regarding a taxpayer’s affairs. There is no requirement for the Department to seek approval from a court of law before releasing the information.
In an effort to assure taxpayers that information will not be provided indiscriminately, the Department has stated that:
a) the Department will restrict the exchange of information to specific requests, and that there will be no automatic or spontaneous exchanges,
b) information will only be provided with regard to bona fide requests from the competent authority of a treaty partner in justifiable cases, and
c) only information that is considered “foreseeably relevant to secure the correct application of the provisions of the CDTA or of the domestic law of the contracting party” shall be provided.
With regard to (c) above, to avoid “fishing expeditions” the Department has published details of the “Particulars to be Contained in a Disclosure Request”. These are very comprehensive, and include the following:
(a) a statement of the information requested and its relevance to the disclosure request, and
(b) the grounds for believing that such information is available in Hong Kong, and
(c) a statement that the government of the contracting party has pursued all means available in its territory to obtain the information, and
(d) if applicable, reasons why the disclosure of the request to the taxpayer may frustrate or undermine the enforcement of tax laws in the treaty partner’s jurisdiction.
Subject to the Department’s agreement to (d) above, details of the request for information will be provided to the taxpayer. The taxpayer will, in most cases, be allowed to review the information and correct any errors of a genuine nature. However, it is unlikely that any amendments will be entertained if they are not received in a timely manner. Taxpayers should be aware that the Department will adhere to the OECD’s standard response time of 90 days.
Where does this leave Hong Kong? It is abundantly clear that the Hong Kong Government and the Department want to be seen to be supporting the concept of tax transparency and the effective exchange of tax information, and do not wish to stand in the way of the development of Hong Kong as a financial centre.
However, it is difficult to evaluate the impact of this “modernisation” of Hong Kong’s tax regime until such time as we are able to gauge the validity of new treaty partners’ desire for information and the willingness of the Department to undertake a rigorous review of all requests for information before sending it to such treaty partners.
