Hong Kong: Inland Revenue Amendment Bill – Exchange of Information (EOI)

The Inland Revenue (Amendment) Bill (the Bill) was passed by the Legislative Council on 10 July 2013. It provides the legal framework to liberalise the Exchange of Information (EOI) regime in Hong Kong and enable Hong Kong to comply with the latest international standard of tax transparency.

Difference between CDTAs and TIEAs

Tax Information Exchange Agreements (TIEAs) are standalone agreements which provide for the EOI in respect of tax related matters. Comparing with TIEAs, Comprehensive Double Taxation Agreements (CDTAs) mainly provide for double tax relief, specify taxing rights and confirm the beneficial withholding tax rates. Before enactment of the Bill, Hong Kong was only permitted to exchange information in respect of a taxpayer with a tax authority in a jurisdiction which has signed a CDTA with Hong Kong.

It should be noted that the scope and purpose of TIEAs and CDTAs are different. Although the CDTAs include articles of EOI allowing the exchange of information in respect of taxpayers in the contracting jurisdictions for prevention of tax evasion, the main purpose of CDTAs is to facilitate the trade and investment between two jurisdictions, achieved by specifying the taxing rights and reducing/eliminating the withholding tax rates. On the other hand, the only purpose of TIEAs is to exchange information of the taxpayers to prevent tax evasion.

Background and history of the development of EOI

In 2010, the Hong Kong Special Administrative Region Government amended the Inland Revenue Ordinance (IRO) to remove the domestic tax interest requirement for exchange of tax information under the CDTAs in order to allow Hong Kong to adopt the latest international standard of EOI at that time. The amendment allowed Hong Kong to significantly and rapidly expand its CDTA network in recent years. However, the amendment only allowed Hong Kong to enter into an EOI as part of a CDTA instead of a standalone TIEA.

In 2011, the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) of the Organisation for Economic Cooperation and Development (OECD) conducted a phase 1 peer review on Hong Kong. According to the review report published in October 2011, the Global Forum commented that Hong Kong has generally implemented the necessary legal framework for EOI. However, Hong Kong was advised to put in place the legal framework for entering into TIEAs.

The Global Forum’s general view is that a jurisdiction should agree to exchange tax related information either pursuant to an EOI article included in a CDTA or a standalone TIEA. However, the Global Forum showed its particular interest to Hong Kong by expressing its view that Hong Kong should not refuse any request to enter into a TIEA if such request is made by another jurisdiction.

In addition to the Global Forum, Hong Kong was under the pressure exerted by some of CDTA partners, both existing and potential, to relax the limitations on tax types as well as information disclosure imposed by Hong Kong under the previous EOI framework which was considered as not in line with the latest international standard on tax transparency.

In May 2012, a public consultation was launched by the HKSAR Government on whether the legal framework of EOI should be amended to allow Hong Kong to enter into TIEAs. One of the major concerns is that if the legal framework of EOI is not amended to allow Hong Kong to enter into TIEAs, Hong Kong may be labelled as a non-cooperative jurisdiction, which would be highly undesirable to Hong Kong’s international reputation and may undermine Hong Kong’s competitiveness as an international business and financial centre. On the other hand, another major concern is that if Hong Kong is allowed to enter into TIEAs, Hong Kong’s effort in expanding its CDTA network may be undermined if other jurisdictions can choose to enter CDTAs or TIEAs with Hong Kong since from other jurisdictions’ perspective, the EOI clause included in CDTAs was a crucial driver for entering into CDTAs with Hong Kong.

Against the above stated background, the Bill was gazetted on 12 April 2013 and passed by the Legislative Council on 10 July 2013.

Legislative changes under the Bill

The following changes were introduced into the existing EOI framework in Hong Kong by amending the IRO and Inland Revenue (Disclosure of Information) Rules.

1. Exchanging information under a TIEA

Under the new legal framework, HKSAR Government is allowed to enter into arrangements with other jurisdictions for exchanging information in relation to tax imposed by the laws of Hong Kong or the other jurisdictions concerned (i.e. TIEAs). As a result, if a TIEA is entered into between Hong Kong and another jurisdiction, the Inland Revenue Department (IRD) can now obtain information from taxpayers and supply the same to the requesting tax authority of the relevant jurisdiction entering into the TIEA with Hong Kong.

2. Extending the IRD’s information gathering power

The IRD’s information gathering power is no longer restricted to the information required to be in the possession of a taxpayer. According to the amendment, the IRD’s information gathering power is extended to information that is in the control of a taxpayer. The amendment enables Hong Kong to comply with the standard term of a TIEA that the scope of information exchanged covers both information possessed or controlled by a taxpayer. However, the new law does not have any clear definition of what constitutes information in the “control” of a taxpayer.

3. Relaxing certain restrictions on information that can be exchanged

Under the new law, pursuant to certain restrictions, tax information that is related to a period before a CDTA or TIEA has come into operation can now be exchanged. The restrictions can be summarised as follows:

  • The tax information is relevant in carrying out the relevant CDTA or TIEA regardless of the period to which it relates; or
  • The tax information is relevant for tax assessments in respect of any period which starts after the relevant CDTA or TIEA has come into operation.

This amendment is a relaxation of the previous provision that tax information cannot be exchanged if it relates to a period before a CDTA comes into operation.

4. Expanding the scope of EOI arrangements

In all of the existing CDTAs entered into between Hong Kong and other jurisdictions, the EOI clause included in the CDTAs restricts the information in relation to the types of tax covered under the CDTAs, i.e. direct income taxes similar to our profits, salaries and property taxes, but not other types of indirect taxes such as value-added tax that is levied by many other jurisdictions entering into CDTAs with Hong Kong.

Under the new law, Hong Kong can enter into a TIEA with a jurisdiction for exchanging information in relation to any type of tax imposed by the laws of Hong Kong or that jurisdiction. The HKSAR Government was of the view that the limited scope of EOI arrangements might hamper Hong Kong’s ability and chance to enter into CDTAs with other jurisdictions and Hong Kong would be able to persuade more key jurisdictions to conduct negotiation of CDTAs with Hong Kong if tax information of more types of tax can be exchanged. Furthermore, expansion of the scope of EOI arrangements also removes the frustration of the existing CDTA partners especially when conducting investigations on tax evasion cases in relation to taxes other than direct income taxes.

Safeguards to protect taxpayers’ confidentiality 

Safeguards to protect taxpayers’ privacy and confidentiality of information have been the major concern when the Bill was introduced. In this regard, the HKSAR Government has committed that the safeguards in respect of the privacy and confidentiality of information of taxpayers exchanged under a TIEA would be the same as those under a CDTA.

The major safeguards under the terms of a CDTA/TIEA include:

  1. Information will only be exchanged upon receipt of requests which means that no automatic exchange will be allowed;
  2. Information requested must be foreseeably relevant to the carrying out of the provisions of the relevant CDTA/TIEA;
  3. There is no obligation to exchange information that will disclose any trade, business, commercial or industrial secret, etc., or is covered by legal professional privilege;
  4. There should be no disclosure of tax information to a third jurisdiction; and
  5. Information exchanged will be treated as confidential and disclosed only to authorities concerned with the assessment and collection of the taxes covered by the relevant CDTA/TIEA.

In addition, some key safeguards available under domestic practices are listed as follows:

  1. To avoid “fishing expeditions”, specified particulars have to be provided in every EOI request;
  2. Validity of approval of an EOI request can be challenged by application for a judicial review;
  3. The IRD’s Users’ Committee may act as an independent body to review the IRD’s compliance with the information disclosure procedures;
  4. Taxpayers are not obliged to provide, for EOI purpose, tax information which is not required or beyond the retention period under the IRO; and
  5. Tax information exchanged may only be used for limited non-tax purposes under the current Hong Kong legislations.


The passage of the Bill undoubtedly marks a beginning of a new era of EOI arrangements in Hong Kong and enables Hong Kong to comply with the latest international standard on tax transparency, and further maintain its reputation as an international financial and business centre.

Under the new EOI framework, Hong Kong can enter into TIEAs with more jurisdictions and this is expected to have a more effective and wider scope of information exchanged with its existing and potential CDTA or TIEA partners. Furthermore, the relaxation of the restrictions on information exchanged under the CDTA framework is expected to persuade more jurisdictions to commence CDTA negotiations with Hong Kong and thus expand Hong Kong’s CDTA network.

Nonetheless, since the international standard of EOI continues to change, Hong Kong may need to further develop the EOI framework in the coming future. Multinational companies with cross-border operations should keep track of the rights and safeguards available to taxpayers under the EOI framework.

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