TNAG-1653-FCO40-2301-Proposed-extension-of-double-taxation-conventions-to-Hong-Ko-1987 — Page 4

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Inland Revenue

Policy Division

RA Burns Esq

South Asian Department

CONFIDENTIAL

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25 November 1987

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25

STATUS OF HONG KONG IN RESPECT OF UK/PRC DOUBLE TAXATION CONVENTION

1.

I need to report to you, and seek your advice on, an informal approach made to me by Mr Anthony Au-Yeung, Commissioner of Inland Revenue, Hong Kong in the margins of a recent Technical Conference of the Commonwealth Association of Tax Administrators (held in Malaysia 11/17 November 1987).

2. The Commissioner said that, as part of their continuing preparation for 1997, his department had been giving some further thought to the situation of Hong Kong in respect to the existing UK/PRC Double Tax Convention of 1984. While Hong Kong had never concluded a DTA with any country in the past, they were now considering whether it would be in the Colony's interest to seek DTA's with trading partners who already had DTA's with PRC. A telling factor was the desire to achieve a smooth transition if the UK/PRC treaty were to be directly applicable to Hong Kong from 1997 (and this itself is a question which still needs much study). A presentational point would be the reassurance that potential investors and trading partners might take from seeing that yet one further unknown - the international tax position following 1997 had now become charted territory.

3. The Commissioner suggested that some informal and exploratory discussions might be the best opening gambit (rather than attempt to

But the fact that even such jump straight into formal negotiations). informal exchanges had taken place could, if it became known, cause economic and/or political ripples. And, of course, the question immediately arises of whether the PRC should participate in the informal dicussions and if so under what terms.

4.

This note is longer on the questions it raises than it is on any answers. Clearly before a definitive answer can be produced there will need to be a good deal of further research both in Somerset House and, I imagine, at the FCO. By way of background I attach pages 2-5 plus appendix of the confidential brief prepared in October 1984 with FCO assistance at the time the DTC with PRC was debated in Parliament (Standing Committee on Statutory Instruments).

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