Consultation Process for Automatic Exchange of Information in Hong Kong

Richard Weisman, Senior US tax partner and Noam Noked, Associate, Baker & McKenzie (Hong Kong)

The Hong Kong Government published in April a consultation paper on the automatic exchange of financial account information in tax matters (“AEOI”), soliciting comments from the public regarding the Government’s proposals for the implementation of AEOI in Hong Kong.

Under the AEOI standard, financial institutions (“FIs”) will identify account holders who are foreign tax residents and report information regarding their financial accounts to the local tax authority. The local tax authority will then transfer this information to the tax authorities in the jurisdictions of tax residence. This exchange of information will be automatic and will be exchanged on an annual basis. All major economies are expected to adopt this standard. As of March 2015, 58 jurisdictions have committed to undertake the first AEOI by 2017 (these are the early adopters of AEOI) and 35 jurisdictions (including China, Hong Kong and Singapore) have committed to undertake the first AEOI by 2018.

Hong Kong announced in September 2014 that it will adopt the AEOI. It will be conducted on a bilateral basis with jurisdictions with which Hong Kong has signed a tax treaty or agreement for exchange of information. Proposed legislative amendments are expected to be introduced into Hong Kong’s Legislative Council in early 2016 and finalised by the end of 2016. In order to meet the 2018 implementation date, FIs will need to start preparing and conducting due diligence procedures in 2017.

The Hong Kong Government has asked for feedback on the following key aspects:

  • FIs, non-reporting FIs and excluded accounts – Do you have any views on the proposed scope of FIs, non-reporting FIs and excluded accounts, within the framework allowed under CRS?
  • Reporting requirements – Do you have any views on the reporting requirements proposed in the Consultation Paper, within the framework required by CRS?
  • Due diligence procedures – Do you have any views on the due diligence procedures (including the alternative approaches to deal with certain circumstances) proposed in the Consultation Paper, within the framework required by CRS?
  • Requirement for FIs to identify and keep information of accounts concerning reportable jurisdictions – Will you, as FI, identify and keep information of accounts concerning reportable jurisdictions, or all non-Hong Kong tax resident accounts, notwithstanding the legislative requirement for FIs to report to IRD only information concerning reportable jurisdictions as proposed in the Consultation Paper?
  • Proposed sanctions – Are the proposed sanctions proportionate to the types of offences? Do you agree that the Government should impose sanctions on individual account holders who make false self-certification?
  • Confidentiality and notification – Does your institution have in place any mechanism to update clients’ information and to meet the confidentiality safeguards?
  • IT system – Will you, as FIs, use your self-developed software or the IRD software for preparing the data files of AEOI Returns? What are the considerations involved?

Members of the public and the industry are invited to send their views to the Government by 30 June 2015.