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In the course of examining the Bill, Members of the Bills Committee expressed concern over two issues, namely whether the amendments would undermine the territorial source basis of our taxation system, and whether there would be an obligation to disclose tax-related information to overseas authorities. Let me make clear the Administration's stand on these two issues.

First, the objective of the amendments is to cater for the unique situation in respect of international airline operations. The initiative for the present legislative amendments came from the local airline industry. Due to the international nature of their operations, airline operators are more susceptible to double taxation than other taxpayers. Our international aviation partners have also appealed to us to enter into negotiation on double taxation relief. In fact, to seek taxation of airlines by the country of residence is the international practice. I can therefore assure Members that the application of the amendments is restricted to the particular situation of international airline operations. They will not be regarded as creating a precedent for the world-wide taxation of income on other types of Hong Kong business.

Secondly, regarding the question of exchange of tax-related information, the Administration has no intention of including an exchange of tax information article in double taxation relief arrangements for airline income in the negotiation of such an arrangement. In the standard double taxation relief article for airline income, there is no provision for exchange of tax information. We have not to date negotiated any such provision and will not do so in future. Moreover, the procedures for bringing a double taxation relief arrangement into effect carry their own safeguard. Under Section 49(1) of the Inland Revenue Ordinance, cach and every double taxation relief arrangement has to be put into effect by an Order to be made by the Governor in Council. Such Orders are subsidiary legislation and therefore subject to the scrutiny of this Council in the usual way. Members can therefore be assured that no exchange of tax information provision can be included in a double taxation relief arrangement without this Council's knowledge or agreement.

At Committee Stage I will move a few amendments to the Bill which have been agreed by the Bills Committee. I shall also explain the reasons for the amendments at that point.

Thank you, Mr President.

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