Column: Features

Hong Kong’s greatest strength is its laissezfaire and pragmatic approach to commerce. Itshistory is steeped in examples of minimising administrative barriers and regulation to facilitate the efficiency, and to lower the costs, of doing business there. This same strength has also been a source of weakness. It has been famously observed that “what is not expressly forbidden is permitted in Hong Kong, whereas in Singapore, anything not expressly permitted is forbidden.” As a result, Hong Kong has often been publicised in lists of tax havens and has been criticised in the past for its opaque approach to taxation administration matters that did not necessarily align with the approach of its key trading partners....

The Hong Kong Special Administrative Region (HKSAR) is facing unprecedented pressure from the Organisation for Economic Cooperation and Development (OECD) and the United States (US) with respect to information exchange. The enactment of the Inland Revenue (Amendment) (No 2) Ordinance 2013 on 10 July 2013 enables the HKSAR to utilise enhanced information exchange under comprehensive double tax agreements (DTAs) and to enter into tax information exchange agreements (TIEAs). The HKSAR is also facing pressure following the enactment of the US’s Foreign Account Tax Compliance Act (FATCA) in 2010. This paper briefly outlines the implications of these international developments and examines the HKSAR’s responses to date....

Tax rates from different countries provide a perceived incentive for multinational companies (“MNC”) to formulate their transfer prices to recognize lower profits in jurisdictions with higher tax rates and higher profits in jurisdictions with lower tax rates. By doing so, MNCs could reduce their aggregate tax payable. Chinese tax authorities have enacted tax rules and regulations to govern transactions between associated enterprises and to prevent unreasonable shifting of profits to jurisdictions outside China. The transfer pricing rules and regulations would create un-certainties to enterprises in terms of whether the transfer pricing between the affected enterprises and their associated enterprises would be challenged by the Chinese tax authorities....

The Hong Kong Inland Revenue Department (IRD) formally introduced an advance pricing arrangement (“APA”) programme on 29 March 2012. As part of the launch of the APA programme, the IRD also issued Departmental Interpretation and Practice Notes No 48 (“DIPN 48”), which provides guidelines on the IRD’s approach to administering, negotiating, and concluding APAs in Hong Kong....

There are many practical considerations when deciding whether or not to pursue an advance price arrangement (“APA”) approach for a multinational company as part of its risk management strategy. Companies should factor in the costs of the APA process and then weigh it up against the resulting benefits of obtaining certainty in respect to the tax implications for profitability levels and the associated tax costs....

This article focuses on the China tax considerations with respect to holding structures for outbound investments made by Chinese entities,2 including the decision on a direct or an indirect investment structure, the location of the intermediary holding company, the treaty network, and the foreign tax credit and domestic anti-avoidance rules....

Foreign investors investing in Chinese companies will often use one or two tiers of intermediate offshore holding companies (“SPVs”). These SPVs are often established in jurisdictions that have low/no income tax on dividends received, exempt capital gains from taxation, and do not impose withholding tax upon further distributions to foreign investors. Paying tax in China on gains from the disposition of the equity interest in the Chinese company can often be avoided by disposing of the shares in the SPV rather than the Chinese company. However, indirect equity transfer is being closely scrutinised by the Chinese tax authorities. In recent years, China has made greater efforts than ever in collecting tax revenue from indirect transactions of local investments....

Trade between related parties constitutes a significant portion of the global merchandise trade. In the US alone, related party trade accounted for 40.8 per cent of total trade in 2010.1 Although there is no definite statistic on how this relates to total world trade, the United Nations Conference on Trade and Development (UNCTAD) estimated that in 2010, foreign affiliates of multinational corporations accounted for more than 10 per cent of global gross domestic product (GDP) and one third of world exports.2 This suggests that related party prices play a significant role in assessing company profits as well as the customs value of individual goods crossing through borders. This figure may likewise highlight the relatively high risk of a company being targeted for compliance by two separate government authorities – the tax authority and the customs authority. Given the complexities and the inherently opposing forces of transfer pricing (TP) and customs, getting it right for both authorities may pose a challenge....

Recently Singapore ratified its avoidance of double taxation agreement (DTA) with Libya, bringing the total number of comprehensive DTAs that Singapore has in force to 64 (with another five treaties pending ratification). This achievement is impressive, considering that the other “Asian tigers” of Hong Kong, Taiwan, and South Korea have 8, 20, and 77 DTAs, respectively, at the time of writing. Singapore considers its tax-treaty network integral to maintaining a competitive tax regime. Other countries or regions such as Hong Kong also share this view. Mr Frederick Ma, a former Hong Kong Secretary for Financial Services and the Treasury, previously said: “Many places in the region have already established a network of [comprehensive DTAs]. Having such a network in place for Hong Kong will put us on a par with other places in the region that already have one, thereby further enhancing our competitiveness. Since Singapore’s international tax policies are closely tied to its economic goals, here we examine how...

This article looks at the continuing, and indeed increasing, problem of double taxation of employees moving between Hong Kong and the Mainland. This situation of double taxation within a single country is one which most independent observers would likely consider unacceptable and in need of urgent resolution. Nonetheless, the different tax systems adopted in Hong Kong and the Mainland, together with the largely autonomous operations of the Hong Kong Inland Revenue Department (IRD) and the State Administration of Taxation of The People’s Republic of China (SAT), provide some obstacles to solving the issue. This is so even though the 2006 Arrangement Between The Mainland of China and The Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter referred to as the DTA) should provide a framework and mechanism for overcoming such obstacles....