Exchange of Information in Hong Kong

Hong Kong, 30 August 2016

Exchange of information (“EOI”) for tax purpose is the transmission of information to enhance tax transparency and to combat cross-border tax evasion.  There are currently two types of EOI instruments in Hong Kong: EOI articles incorporated in Comprehensive Double Taxation Agreements[1] (“CDTAs”) and the Tax Information Exchange Agreements[2] (“TIEAs”).

Hong Kong has so far concluded 35 CDTAs and 7 TIEAs.  The EOI in Hong Kong provided under CDTAs and TIEAs currently only allows the exchange of information upon request.  Treaty partners could request information covered under the EOI articles of the CDTAs and TIEAs that are foreseeably relevant for tax purposes without retrospective effect.

However, Hong Kong is committed to the automatic exchange of information to comply with the OECD standard.  The Inland Revenue (Amendment) Bill 2016, which seeks to put in place a legal framework for Hong Kong to implement the new international standard for automatic exchange of financial information, was gazetted on 8 January 2016. The first automatic exchange is expected to commence by 2018 in relation to information collected starting from 2017.

1. Current EOI features in Hong Kong

1.1. EOI upon request only

Exchange of information could be made on request, automatically or spontaneously under Art. 26(1) of the OECD Model.  Although the CDTAs concluded by Hong Kong do not limit nor commit Hong Kong and the treaty partners as to the forms or manner in which information exchange can take place, Hong Kong’s current EOI policy is that information will only be exchanged upon request.  Information, including bank information, will be supplied upon specific and bona-fide requests received from the competent authority of a treaty partner in justifiable cases[3].

1.2. Scope of EOI

The first paragraph defines the scope of the EOI, which has been broadened in the recent years.

The first point to consider under Para. 1 of the CDTAs signed by Hong Kong is that the scope of information is not restricted by Article 1[4] and therefore a contracting state may request information to the other contracting state about a person resident for tax purposes in a third country.  In other words, Hong Kong is obliged to exchange information with the other contracting state in respect to all persons, subject to the limitations in the CDTAs and the information gathering powers of the IRD, excluding the obligation to request information to other jurisdictions (i.e. fishing expeditions).

The other main point contained in Para. 1 is the setting of the boundaries for the EOI, which has to be “foreseeably relevant” to secure the correct application of the provisions of the CDTA or the domestic laws of one or both the contracting states. These boundaries, in line with the OECD Model Commentary (“Commentary”) on Art. 26, Para. 5, are pushed in the CDTAs signed by Hong Kong to the widest possible extent, excluding only the “fishing expeditions” or other requests that are unlikely to be relevant to the tax affairs of a taxpayer.

Currently out of the 35 CDTAs concluded so far by Hong Kong, 3 CDTAs[5] use the term “as is necessary” instead of using the term “foreseeably relevant”. In this respect, the Commentary[6] recognizes to the term “as is necessary” the same scope as the term “foreseeably relevant”.

In all but two of the CDTAs concluded to date[7], namely with France and Mexico, Hong Kong has adopted a first ‘restrictive choice’, anyway within the admitted restrictions of the OECD Commentary, according to which Hong Kong shall exchange information with a contracting party only in relation to taxes covered by the CDTA[8].

In relation to the CDTAs with France and Mexico, the question arises whether Hong Kong will risk a conflicting interpretation of the EOI article[9] or will try to amend those two CDTAs by concluding a new protocol, like it was done with Japan.

1.3. Possession and control

The Commission of Inland Revenue has the power to obtain information from taxpayers that “possess” and “control” the information after the 2013 Amendment[10], in order to comply with the provisions stated under the CDTAs and TIEAs.  For example, the Commission of Inland Revenue has the power to obtain information from third-party service providers for data processing, as service providers are considered as having control (or physical possession) of the information.  Meanwhile, the term “possession” does not mean physical possession only.  DIPN 47 states that it also bears the meaning of legal possession.  If a person is the legal owner of the information, the person is considered to be in possession (legal possession) of the information even though such information is kept by other parties such as auditors or lawyers.

1.4. No retroactive effect

EOI under CDTAs and TIEAs does not have retroactive effect.  Only information relating to any period or periods after the effective date of a CDTA or a TIEA will be exchanged.  Nevertheless, information that exists or generated prior to the effective date of a CDTA or a TIEA will be exchanged if the information is foreseeably relevant for the carrying out of the provisions of the CDTA or TIEA or to the tax administration or enforcement of the tax law of the treaty partner concerning taxes imposed in period that starts after the CDTA or TIEA came into effect[11].

1.5. No disclosure to oversight authorities or third jurisdictions

Hong Kong does not allow the disclosure of information to authorities that supervise the tax administration and enforcement authorities[12] although Art. 26 of the OECD Model and Art. 8 of the OECD Model TIEA permits disclosure of information exchanged to the oversights authorities of the treaty partners; as such, Hong Kong has deleted the reference to the oversight bodies in the CDTAs and TIEAs concluded so far.

Hong Kong also does not allow the disclosure of information to any third jurisdiction for any purpose to ensure the strictest confidentiality[13].  This position aligns with the OECD position that information may not be disclosed to a third country unless there is an express provision in the bilateral treaty allowing it[14].

1.6. Other safeguards

The other safeguards to the EOI provided by Hong Kong follow essentially the OECD Commentary on Art. 26(1) and can be summarized as follows:

  • Tax secrecy and confidentiality: any information supplied by a contracting party must be treated as confidential as defined by the applicable domestic law in the requesting party.
  • Use of information for tax purposes only: the tax information exchanged shall be used only in relation to the taxes referred in the CDTA’s and cannot be used for non-tax purposes.
  • No obligation to carry out measures at variance with domestic laws and practices: a contracting party should be required to do no more than it would if its own taxation were at stake.
  • No obligation to provide information not obtainable under domestic law or cannot be obtained in the normal course of administration.
  • Reciprocity: a requested party is not obliged to supply information that the requested party itself could not obtain under its own laws in similar circumstances.
  • Public policy: a contracting party is not obliged to supply information the disclosure of which would be contrary to public policy.
  • Trade business and other secrets: no obligation to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process.

1.7.  A specific issue: legal professional privilege

The issue of the legal professional privilege is also touched in the DIPN 47, Para 61. The scope of attorney-client privilege is not defined in any statute. At common law, the privilege attaches to confidential written or oral communications between a professional legal adviser and his client, or any person representing the client, in connection with and in contemplation of, and for the purposes of legal proceedings or in connection with the giving of legal advice. In this respect, both the OECD EOI and Art. 26(3)(c) specifically include the legal privilege as a limitation to the exchange of information.

Therefore, Hong Kong is not obliged to disclose information relating to confidential communications between a client and an attorney, solicitor or other admitted legal representative protected by attorney-client privilege. The privilege does not apply to communications between the client and third party for which no attorney-client relationship exists, since this privilege is confined to the legal profession only. For example, the privilege does not extend to communications between a person and his accountant or auditor.

However, where an attorney acts in any other capacity other than as an attorney, such as nominee shareholders, trustees, settlers , company directors or under a power of attorney to represent a company in this business affairs, the attorney-client privilege does not apply. In this case, requests of information relating to any such communications cannot be declined because of the attorney-client privilege.

1.8. How to request EOI in Hong Kong?

 The Inland Revenue Department has issued guidelines on how Hong Kong’s treaty partners could request EOI.  This procedures are summarized as follows:

  • Treaty partners shall address their requests for EOI to the Commissioner of Inland Revenue, the competent authority of Hong Kong.
  • Upon receipt of an EOI request, the Commissioner will examine the request, and then approve or decline the request.
  • If the request is approved, the Inland Revenue will give prior notification to the subject person before the information is exchanged unless exceptional circumstances exist[15].
  • The subject person have the right to request a copy of the information and to amend factual errors.
  • The Inland Revenue will try to comply with the standard response time of 90 days set by the OECD. If the information is unable to be provided within the 90-day period, the Inland Revenue will inform the treaty partner with reasons for not being able to do so upon expiration of that period.

2. The Future: Automatic Exchange of Financial Account Information (“AEOI”)

In September 2014, Hong Kong indicated its support for implementing AEOI, which involves the automatic transmission of financial account information from Hong Kong to its AEOI partners on a reciprocal basis. Hong Kong has committed to undertake the first exchange by the end of 2018.  To put in place a legislative framework for Hong Kong to implement AEOI, the Inland Revenue (Amendment) (No.3) Ordinance 2016 (the “Amendment Ordinance”) was gazetted and came into effect on 30 June 2016.  The AEOI features of Hong Kong are discussed as follows.

2.1. Hong Kong’s targeted AEOI partners

Hong Kong intends to partner only with jurisdictions which have signed a CDTA or TIEA with Hong Kong in the first place.  Up to end of June 2016, 35 CDTAs and 7 TIEAs have been signed by Hong Kong.  The IRD intends to announce the list of AEOI partners, i.e., the jurisdictions with which Hong Kong has entered into AEOI agreements, for exchange of information in 2018.  Unless an account holder is a tax resident of Hong Kong’s AEOI partners, reportable financial institutions in Hong Kong do not need to report the information of those accounts to the IRD.

2.2. Reportable persons and accounts

A financial institution resident in Hong Kong is required to identify financial accounts[16] held by tax residents in the AEOI partner jurisdictions in accordance with the OECD due diligence procedures. The type of financial institutions covered by AEOI include custodial institutions, depository institutions, investment entities and specified insurance companies.  A financial institution will not have obligations under the AEOI regime in Hong Kong, unless it is a “reporting financial institution” which is defined to mean a financial institution resident in Hong Kong or a branch of a non-resident financial institution located in Hong Kong.

2.3. Due Diligence Obligations

Reporting financial institutions are obliged to establish, maintain and apply due diligence procedures to identify the tax residency of account holders and controlling persons, identify each of their reportable accounts, and collect the required information for reporting.  Section 17D of the Inland Revenue (Amendment) (No.3) Ordinance 2016 outlines the due diligence requirements for pre-existing and new accounts.

2.4. Tax residents of reportable jurisdictions

“Tax residents of reportable jurisdictions” refers to those who are liable to tax by reason of residence in jurisdiction of Hong Kong’s AEOI partners.  Whether an individual is a tax resident of a jurisdiction is generally determined by the person’s physical presence or stay in a place (e.g. whether over 183 days within a tax year); while for a corporation, it is determined by the place of incorporation as well as the place of central management and control.  FIs may request account holders to provide self-certifications on their personal information including tax residence, so as to enable them to identify those reportable accounts.

2.5. Exemptions for FIs and accounts

 Exemptions are provided to certain financial institutions and accounts which present a low risk of being used to evade tax.  They are defined as “non-reporting financial institutions” and “excluded accounts” in the new Schedule 17C of the IRO.  In particular, Mandatory Provident Fund Schemes, registered Occupational Retirement Schemes (including the respective approved pooled investment funds) and registered credit unions are regarded as non-reporting FIs, while dormant accounts with a balance not exceeding HK$7,800 are excluded from AEOI reporting.

2.6. Information Required for Reporting

Reportable financial institutions are obliged to collect the required information of each reportable accounts and furnish such information to the IRD on an annual basis.  The IRD will then exchange the information to the tax administration of the relevant AEOI partners of which the account holder is a tax resident.

The required information for reporting consists of personal data and financial account data of each reportable account of reportable persons.  The personal data required includes the name, address, jurisdiction of residence, TIN, and the date of birth (for individuals only) of the account holder; while the financial account data covers the account number, account balance, and gross amount of interest, dividends, other income generated in respect of the financial assets held and the proceeds from the sale or redemption of financial assets, where applicable.  Reportable financial institutions are also obliged to furnish any other information that the IRD specifies.


Since Hong Kong will only exchange information with AEOI partners that Hong Kong has signed a CDTA or TIEA with, the taxpayer’s privacy and confidentially of information exchanged will be protected by the safeguards provided in the CDTA and TIEA.  The Hong Kong government also revealed the guiding principles for identifying potential AEOI candidates from existing or future CDTA / TIEA partners are that they should have the capability in meeting the OECD standard and relevant safeguards in their domestic law for protecting data privacy and confidentiality of the information exchanged.

Besides, reporting financial institutions are obliged to observe requirements under the Personal Data (Privacy) Ordinance.  The requirement includes informing the account holders of the purpose of the use of the personal data for AEOI, and taking all practicable steps to ensure the accuracy and security of the personal data.  Account holders are entitled to request access to and correction of their personal data.

Should there be any breach of such rules and safeguards, Hong Kong may suspend the information exchange or terminate the AEOI agreement with the partner concerned.

For more information, please contact:

Marzio Morgante
Dottore Commercialista, LL.M.
Managing Partner

Rooms 501-2, Wilson House,
19-27 Wyndham Street,
Central, Hong Kong

Tel: (852) 3102 1995
Fax: (852) 3102 0991

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[1] CDTAs focus on addressing the elimination of double taxation and the prevention of fiscal evasion through EoI between treaty partners

[2] TIEAs provide for EoI for the purposes of tax collection and enforcement of the relevant tax laws

[3] See DIPN 47, Para 20.

[4] According to which the relevant convention shall apply to residents of one or both the Contracting States.

[5] The CDTAs with Belgium, Thailand and Vietnam, all concluded prior to the 2010 Amendments.

[6] OECD Commentary on Art. 26, Para. 5.

[7] Hong Kong followed the 2000 OECD version of Art. 26(1).

[8] After enactment of the 2013 Amendment Ordinance, the coverage of tax types for exchanging information is extended to any tax imposed by the laws of Hong Kong or the treaty partners. See DIPN, Para.27.

The IRD targets to adopt a positive listing approach to set out the tax types to be covered in each CDTA and TIEA.   In this respect, the seven TIEAs signed subsequent to the 2013 Amendment all included a list of the tax types covered in Article 3 of the TIEA.  The Fourth Protocol to the Hong Kong-China Double Tax Agreement, signed on 1 April 2015, also extends the definition of PRC taxes subject to EoI article under CDTA by providing a list of the tax types covered.

[9] It shall be pointed out that there is a potential conflicting interpretation in the wording of Para. 1 of the CDTAs with France and Mexico, where the current version states “taxes of every kind and description imposed on behalf of the Contracting Parties” without making any reference to Article 2 of the CDTA. This could lead to the interpretation that there is no restriction to taxes covered by the CDTA and therefore in contrast with Hong Kong’s intention mentioned above.

A similar principle was stated in the 1998 version of Art. 26(1) of the OECD Model but using different words. In this case, the paragraph restricted the scope of information exchanged to those “concerning taxes covered by the Convention” and not making any further reference to Article 2. When Art. 26(1) OECD Model was modified in the 2000 version in order to further extend the scope of information to taxes other than those covered by Article 2, amendments were made to the paragraph including the new wording “taxes of every kind and description imposed on behalf of the Contracting Parties” and an addition not to restrict the exchange of information to the taxes listed at Article 2 of the OECD Model. This was done to avoid any potential conflicts in the wording of the article, which otherwise would have not been so clear.

[10] See Sections 51 and 51 of the IRO.

[11] See DIPN 47, Para. 46 and 47.

[12] See DIPN 47, Para. 43.

[13] See DIPN 47, Para. 44.

[14] See Commentary on Art. 26, Para. 12.2 and the OECD Guide on the Protection of Confidentiality of Information Exchanged for Tax Purposes.

[15] See DIPN 47, Para. 66 and 67.

[16] Financial accounts include custodial accounts, depository accounts, equity or debt interests in investment entities and cash value insurance contracts and annuity contracts.

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