Hong Kong To Soon Join OECD’s Multilateral Tax Compact
Hong Kong on February 2, 2018, ratified an Ordinance to enable the territory to soon join the OECD’s Multilateral Convention on Mutual Administrative Assistance in Tax Matters and thereby more simply and more broadly agree to exchange tax information with other countries’ tax authorities.
The Inland Revenue Department said the Ordinance on the Automatic Exchange of Financial Account Information (AEOI) takes Hong Kong one step closer to participating in the multilateral international tax information exchange framework provided by the MCAA, both for the exchange of financial account data under the OECD’s Common Reporting Standard, and the exchange of country-by-country reports on multinationals’ tax and transfer pricing affairs, agreed under the OECD’s base erosion and profit shifting (BEPS) project.
By becoming a party to the MCAA, Hong Kong will be able to select those other signatories with which it intends to enter into automatic exchange of information relationships, rather than having to negotiate individual agreements with states bilaterally.
“As an international financial center, Hong Kong has been committed to enhancing tax transparency, combating cross-border tax evasion, and actively implementing AEOI as well as the BEPS package promulgated by the Organization for Economic Co-operation and Development (OECD),” said the Inland Revenue Department. “Given the continued expansion in the scope and network of tax information exchanges in the international community, Hong Kong needs to move from the established bilateral approach for implementing various new tax standards to riding on the Multilateral Convention on Mutual Administrative Assistance in Tax Matters to implement the relevant initiatives.”
“To allow Hong Kong to implement the new initiatives on international tax cooperation more effectively and reduce the risk of Hong Kong being identified as a ‘non-cooperative tax jurisdiction,’ the Government will strive to complete the procedures for participating in the Multilateral Convention as soon as practicable,” it said.
Changes provided in the Ordinance are said to not make “substantial changes” to the due diligence requirements for financial institutions. The January 1, 2019, implementation date is intended to allow reporting institutions more time to fine-tune their systems. As such, the existing AEOI provisions will continue to apply to reports due in 2019, covering 2018 data. The refined provisions will apply to reports due in 2020, covering 2019 data, and thereafter, the Government said. The Government said it will arrange briefings for financial institutions on the new rules and update its guidelines accordingly.
To join the MCAA, authorities in China must provide assistance to extend the Convention’s coverage to Hong Kong, and Hong Kong’s Chief Executive must make an order to declare the Multilateral Convention has effect in Hong Kong. That order, to be made under the new Ordinance, will be subject to the scrutiny of the legislative council by negative vetting, the Government said.
