hardily except
inv.brouvent
sense.
3
Assuming that the Agreement is still in force in 1997, it could apply to Hong Kong if the taxes then imposed there were "identical or substantially similar" to the "existing" Chinese taxes. At present Hong Kong, which is fiscally autonomous, imposes taxes on property, earnings, profits and income. they are taxes on true profits and income we would regard them as falling within the term "substantially similar" taxes.
In that
The Draft Agreement on the Future of Hong Kong, which has been published as a White Paper [Miscellaneous No 20 (1984) Cmnd 9352] and is still to be considered by the House, makes certain provisions for the current social and economic systems in Hong Kong to continue for a period of 50 years after Hong Kong reverts to China in 1997. In particular, what will become the Hong Kong Special Administrative Region (HKSAR) is to have independent finances; and the Central People's Government will not levy taxes in the HKSAR (Paragraph 3 (8) of the Joint
Declaration
This is spelled out in greater detail in Annex I (V) to the Joint Declaration (see Appendix), and Annex I (XI) goes on to provide, in the second sentence, for the HKSAR to enter into its own arrangements covering matters of finance. Nevertheless, the laws under which taxes are imposed in Hong Kong will be Chinese laws after June 1997 and if the post-1997 Hong Kong taxes are similar to those at present imposed there, they could be regarded as imposed "in place of" the mainland Chinese taxes and therefore covered by the Agreement.
see the Appendix).
Hong Kong's present policy, however, is not to have double tax agreements [see background note to question 4, below] and we do not know whether this will change in the 50 year period after 1997. Clearly all this will need further consideration closer to 1997 in the light of any developments concerning the Agreement and the final arrangements for the reversion of Hong Kong to China. In due course we intend to take the matter up with the Hong Kong tax authorities before raising the matter with the
Chinese.
4
4.
WHY IS THERE NO DOUBLE TAXATION AGREEMENT BETWEEN THE
UNITED KINGDOM AND HONG KONG?
Suggested Answer: Hong Kong is autonomous in fiscal matters and its policy is not to have double tax agreements with any country.
Background Note
ie it taxes only income Hong Kong levies tax on a source basis arising in Hong Kong regardless of the residence status of the
It therefore takes the view recipient company or individual.
that, if non-residents are taxed in their home country on Hong Kong source income, it is for that country to relieve double
taxation.
4A.
HOW WILL THE AGREEMENT AFFECT COMPANIES WITH HONG KONG
SUBSIDIARIES IN THEIR DEALINGS WITH CHINA?
2
Suggested Answer: The Agreement does not apply to Hong Kong and income derived from business activities in China by Hong Kong resident companies which are subsidiaries of United Kingdom companies will be subject to normal Chinese tax laws and is not affected by the Agreement. However, if a United Kingdom parent company receives dividends from its Hong Kong subsidiary in which it holds 10 per cent or more of the shares and the profits out of which the dividends are paid have suffered tax in China, unilateral relief will normally be available under our domestic law (ICTA 1970, Section 498) in respect of the tax paid in China.
for But the additional benefits provided by the Agreement example, matching credit for Chinese tax spared under China's
will not be available. pioneer relief provisions
-
4B.
IS TAIWAN COVERED BY THE AGREEMENT?
Suggested Answer:
No. China is defined in Article 3 of the
Agreement by reference to its territory in which "the laws
relating to Chinese tax are in force."
force in Taiwan.
Chinese tax law is not in
5
APPENDIX
EXTRACTS FROM WHITE PAPER DRAFT AGREEMENT
ON THE FUTURE OF HONG KONG [MISCELLANEOUS NO 20
(1984) CMND 9352]
Paragraph 3 (8) of Joint Declaration
(8) The Hong Kong Special Administrative Region will have indepen- dent finances. The Central People's Government will not levy taxes on the Hong Kong Special Administrative Region.
Annex I (V) to Joint Declaration
The Hong Kong Special Administrative Region shall deal on its own. with financial matters, including disposing of its financial resources and drawing up its budgets and its final accounts. The Hong Kong Special Administrative Region shall report its budgets and final accounts to the Central People's Government for the record.
The Central People's Government shall not levy taxes on the Hong
The Hong
Hong Kong Special Kong Special Administrative Region. Administrative Region shall use its financial revenues exclusively for its own purposes and they shall not be handed over to the Central People's Government. The systems by which taxation and public expenditure must be approved by the legislature, and by which there is accountability to the legislature for all public expenditure, and the system for auditing public accounts shall be maintained.
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