Macroscope | Hong Kong needs to catch up with latest global tax standards

Exchange of information is a recognised tool to enhance tax transparency and combat cross-border tax evasion. As a major financial centre, Hong Kong is committed to following global standards.

While the city practises a simple and territorial-based tax regime, it needs to catch up with the latest international standards to facilitate exchange of tax information with other jurisdictions.

As one of its key priorities, the Financial Services and the Treasury Bureau launched in April a consultation exercise to gauge views on proposals to apply, with adaptations for Hong Kong, the latest standard published by the Organisation for Economic Cooperation and Development on automatic exchange of financial account information in tax matters.

Under the new standard, jurisdictions are required to collect from financial institutions account information of non-domestic tax residents and exchange the information with jurisdictions of residence of the account holders on an annual basis.

In general, a person will be resident for tax purposes in a jurisdiction if he pays or should be paying tax required under the law. As the tax residence of account holders may change and the tax laws may differ among jurisdictions, account holders will have to verify and update their tax residence.

Financial institutions will rely on the update of account holders but they should follow due diligence requirements in certifying it.

How is the new standard different from the existing one? Hong Kong has so far signed 32 comprehensive avoidance of double taxation agreements and seven tax information exchange agreements with other jurisdictions, which allow the exchange of information on a request basis.