Inland Revenue Ordinance Amended to Allow Standalone Tax Information Exchange Agreements

Hong Kong recently passed the Inland Revenue (Amendment) Bill 2013 (the “Bill”) on July 10, 2013. This allows the city to agree with another jurisdiction relief from double taxation, as well as the exchange of information related to tax imposed by the laws of Hong Kong or such other jurisdiction. Thus, pursuant to the Bill, Hong Kong may now enter into what is commonly referred to as a standalone tax information exchange agreement (“TIEA”).

Prior to passage of the Bill, Hong Kong could exchange tax information only with jurisdictions with which it had entered into a comprehensive avoidance of double taxation agreement (“CDTA”). Hong Kong is currently a signatory to 29 CDTAs. The introduction of the Bill follows a recommendation from the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes (the “Global Forum”), an intergovernmental body established to ensure the implementation of internationally-agreed standards for exchange of tax information and transparency.

Without the introduction of TIEAs, Hong Kong faced the prospects of failing the Global Forum’s review, potentially resulting in its characterisation as an uncooperative jurisdiction. The passage of the Bill indicates Hong Kong’s commitment to maintaining its reputation as an international financial hub. However, while the legislative changes bring Hong Kong closer to the Global Forum’s standards, it remains to be seen whether other jurisdictions, particularly major trading partners, will continue to be incentivised to enter into a CDTA with Hong Kong when the information can be obtained under a TIEA.

The Bill also enables Hong Kong to enter into an intergovernmental agreement (“IGA”) with the US, under which financial institutions would be permitted to report information on the financial accounts of any US citizen, green card holder or tax resident as provided under the Foreign Account Tax Compliance Act (“FATCA”). Under such an IGA, financial institutions would be subject to disclosure obligations under FATCA and share their clients’ information with the US government via the Hong Kong Inland Revenue Department. This will have significant implications for numerous Hong Kong residents that have close US ties.

- Andrew Abernethy, Partner, & Albert J. Suh, Associate, Akin Gump Strauss Hauer & Feld