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MONDAY, SEPTEMBER 11, 1989
DOUBLE TAXATION AGREEMENT
EXCEPTION RATHER THAN THE RULE : FS
THE GOVERNMENT REMAINS OF THE VIEW THAT, AS A GENERAL RULE. HONG KONG SHOULD NOT ENTER INTO DOUBLE TAXATION ARRANGEMENTS WITH OTHER COUNTRIES, THE FINANCIAL SECRETARY, SIR PIERS JACOBS, SAID
TODAY (MONDAY).
SPEAKING AT THE ANNUAL LUNCHEON OF THE INLAND REVENUE BOARD OF REVIEW, SIR PIERS SAID FOR MANY YEARS NOW, THIS GENERAL POLICY HAD WORKED WELL FOR HONG KONG.
"CONCEPTUALLY, IT IS INEQUITABLE FOR PROFITS TO BE SUBJECT TO DOUBLE TAXATION MERELY BECAUSE TRANSACTIONS CROSS INTERNATIONAL BOUNDARIES.
"DOUBLE TAXATION CAN CREATE LEGAL AND FISCAL UNCERTAINTY AND IT TENDS TO DISCOURAGE THE FREE FLOW OF INTERNATIONAL TRADE AND INVESTMENT AND, IN THIS MODERN WORLD, THE TRANSFER OF TECHNOLOGY.
"IT HAS THEREFORE BECOME COMMON FOR COUNTRIES TO NEGOTIATE BILATERAL AGREEMENTS TO ESTABLISH THEIR RESPECTIVE TAXING RIGHTS AND TO AVOID DOUBLE TAXATION,' HE NOTED.
HE STRESSED HOWEVER THAT THERE WAS NO QUESTION THAT HONG KONG RESIDENTS WERE DOUBLE TAXED ON THEIR OVERSEAS SOURCED INCOME AS HONG KONG APPLIED A TERRITORIAL SOURCE BASIS AND TAXED ONLY INCOME WHICH HAD A SOURCE IN HONG KONG.
SIR PIERS FURTHER POINTED OUT THAT THERE WAS NO USEFUL PURPOSE OR JUSTIFICATION FOR HONG KONG TO ENTER INTO SUCH AGREEMENTS BECAUSE THE TAX SYSTEM HERE WAS SIMPLE AND STRAIGHTFORWARD, POSSIBLY UNIQUE, AND BECAUSE THE PERCEIVED BENEFITS ACCRUING TO HONG KONG WERE SMALL.
HE RECALLED THAT IN THE PAST, PROBLEMS DID SOMETIMES ARISE WHEN HONG KONG EMPLOYEES RENDERED PART OF THEIR EMPLOYMENT SERVICES OUTSIDE HONG KONG, NOTABLY IN CHINA, AND AS A RESULT, THEY WERE TAXED IN BOTH THE COUNTRIES WHERE THE SERVICES WERE RENDERED AND ALSO HERE.
"TO OVERCOME THIS PROBLEM THE INLAND REVENUE ORDINANCE WAS AMENDED IN 1987 TO GRANT UNILATERAL RELIEF BY EXEMPTING FROM HONG KONG TAX INCOME DERIVED FROM SERVICES RENDERED IN ANOTHER COUNTRY WHERE TAX HAD BEEN PAID ON THAT INCOME IN THAT OTHER COUNTRY, HE SAID.
REGARDING NON-RESIDENT TAXPAYERS WHO MIGHT BE SUBJECT TO DOUBLE TAXATION FOR THEIR HONG KONG SOURCED INCOME, SIR PIERS POINTED OUT THAT GIVEN THE LOW TAX RATES IMPOSED HERE, THERE WAS LITTLE SCOPE TO ASSIST THESE TAXPAYERS IN THE AVOIDANCE OF DOUBLE TAXATION WITHOUT GIVING UP THE RIGHTS TO TAX INCOME ON WHAT WAS ALREADY A VERY NARROW TAX BASE.
TO
"SINCE THE TAX CLIMATE IN HONG KONG IS GENERALLY FAVOURABLE FOREIGN INVESTORS
WITH THE COMPARATIVELY LOW LEVEL OF DIRECT
TAX TAXATION, THE ABSENCE OF ANY
ON CAPITAL GAINS,
AND DIVIDENDS OFFSHORE PROFITS AND THE RELATIVE SIMPLICITY OF THE TAX SYSTEM - WE
FOR HONG KONG HAVE TAKEN THE VIEW THAT THERE IS NO REQUIREMENT
TO OFFER DOUBLE TAXATION RELIEF TO RESIDENTS OF OTHER TAX JURISDICTIONS.
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