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Policy on double taxation explained
The Secretary for the Treasury, Mr K C Kwong, said today (Thursday) that the Government enters into negotiations on double taxation relief for airline income to address the unique situation of international airline operations and will not regard this as creating a precedent for taxing non-Hong Kong sourced income.
He said that Hong Kong adopts a "territorial source" principle and only profits or income which arise in or are derived from Hong Kong are liable to tax here.
"We have no intention to depart from our well-tried and tested territorial source principle - the cornerstone of our taxation system," he emphasised.
Speaking at the luncheon meeting of the Society of Chinese Accountants & Auditors today (Wednesday), Mr Kwong explained that in simple terms, "double taxation" occurs when comparable taxes are imposed in two jurisdictions on the same person in respect of his same income for identical periods.
"A double taxation agreement avoids that by clearly demarcating the respective. taxing rights of the jurisdictions concerned. It provides relief for individual taxpayers who may otherwise suffer from double taxation. It also provides the taxpayers with a higher degree of certainty on how their operations in the jurisdictions concerned will be taxed."
He pointed out that taxes in Hong Kong are low; and many countries offer their residents unilateral relief for Hong Kong tax paid on Hong Kong sourced income.
With regard to double taxation agreements relating to the airline industry, Mr Kwong said that in view of the special characteristics of the industry and requests from local airlines and overseas countries, Hong Kong seeks to follow the international practice of negotiating double taxation agreements on airline income.
"It is now our policy to incorporate provisions on double taxation relief for airline profits in Air Service Agreements negotiated between Hong Kong and our bilateral aviation partners on a case by case basis."
"The standard double taxation provisions normally provide that Hong Kong will tax the income generated from the international traffic of Hong Kong airlines derived from the agreement country and which has been granted full tax relief by that country.
"In return, Hong Kong will forgo the right to tax the income of airlines of that agreement country derived from Hong Kong if such income is subject to tax in the agreement country.
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