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Inland Revenue (Amendment) Bill
Following is the speech by the acting Secretary for the Treasury, Mr Alan Lai, in moving the second reading of the Inland Revenue (Amendment) (No 3) Bill 1995 in the Legislative Council today (Wednesday):
Mr President,
I move that the Inland Revenue (Amendment) (No. 3) Bill 1995 be read a second time.
It is our policy to include provisions on double taxation relief for airline income into the Air Services Agreements which we have negotiated with our bilateral aviation partners on a case by case basis, subject to the endorsement of the Chinese side. Due to the international nature of their operations, airline operators are more prone to double taxation than other taxpayers. The taxation of income from aircraft operation is a "grey area" because the income is mainly derived from activities carried on in the "no man's land" of international air space. This makes it difficult to allocate, on a meaningful basis, income amongst the countries visited in the course of an international flight. For this reason, many countries have introduced special rules for computing an airline's income, particularly for non-resident airline operators.
Unlike Hong Kong which adopts a territorial source principle, most countries tax their residents on a world-wide basis. It is therefore common for airline operators to suffer double taxation. To address this, many countries seek to conclude double taxation agreements on airline income which give them exclusive taxing rights in respect of their resident airlines.
By virtue of the double taxation relief article we seek to include in the Air Services Agreements, Hong Kong will tax the income generated from international traffic of Hong Kong airlines derived from an agreement country and which has been granted full tax relief by that country. In return, we will forgo the right to tax the income of airlines of the agreement country derived from Hong Kong if such income is subject to tax in the agreement country. This will mean that Hong Kong airlines will pay tax only in Hong Kong, which in general has a lower tax rate, on income attributable to an agreement country. They will also benefit from not having to deal with the tax authorities in an agreement country. We are currently discussing and negotiating such arrangements with various countries.
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