28th March 2014
Hong Kong officials have agreed a deal with the US to share tax information on Americans who work or have assets in the city. It is part of Washington’s global efforts to improve tax transparency and is seen as a forerunner to a wider-ranging deal that would see the enforcement of the US Foreign Account Tax Compliance Act (FATCA) in Hong Kong.
So far Japan is the only Asian nation with fully FATCA-compliant deals in place, but this new move with Hong Kong is a sign of further progress. Charles Kinsley, tax partner at KPMG in Hong Kong, believes China will follow suit shortly. “Many mainland financial institutions in China are already working on FATCA projects,” he told the Wall Street Journal.
Hong Kong’s Financial Services and Treasury Bureau said the deal announced on Tuesday (March 25th) is the first tax information exchange agreement (TIEA) signed since the legal framework for entering into such agreements with other jurisdictions was put in place in July last year.
The agreement with the US provides the “necessary basis” for Hong Kong to comply with FATCA requests in future, the bureau said.
TIEAs provide for exchange of information by the Inland Revenue Department (IRD) upon request made by another jurisdiction - the US in this case - in relation to the assessment or enforcement of tax matters. The difference is that instead of information being shared as part of the comprehensive agreements for avoidance of double taxation (CDTAs) signed by Hong Kong with other jurisdictions, TIEAs provide for this on a “stand-alone basis”.
Hong Kong’s secretary for financial services and the treasury professor KC Chan, said the agreement demonstrates Hong Kong's continued commitment to promote tax transparency. "The TIEA with the US has adopted highly prudent safeguard measures to protect taxpayers' privacy and confidentiality of information exchanged,” he said.
In the meantime, Hong Kong will “continue its efforts to expand the network of CDTAs with its trading and investment partners”, the Financial Services and Treasury Bureau said in a release.