Hong Kong, China

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Overall Phase 2 Rating is Largely Compliant

Table of Determinations and Ratings of the Phase 2 Review

Jurisdictions should ensure that ownership and identity information for all relevant entities and arrangements is available to their competent authorities. (ToR A.1)
Determination Factors Recommendations
The element is in place, but certain aspects of the legal implementation of the element need improvement.   Nominees that are not subject to AML obligations (i.e. those other than lawyers or financial institutions) are not required to maintain ownership and identity information in respect of all persons for whom they act as legal owners.  An obligation should be established for all nominees to maintain relevant ownership information where they act as the legal owners on behalf of any other persons. 
While there are no share warrants to bearer in circulation at present, there are currently insufficient mechanisms in place that ensure the availability of information allowing for identification of their owners. The new Companies Ordinance, which has been enacted but is not yet in operation, repeals the power of a company to issue share warrants to bearer as of the day the ordinance becomes operative.  Hong Kong should continue to take necessary steps to ensure that robust mechanisms are in place to identify the owners of share warrants to bearer or eliminate companies’ ability to issue such shares.  
Not all trustees of private express trusts and foreign trusts are statutorily required to have information available on the identity of settlors and beneficiaries of trusts.   Hong Kong should ensure that information that identifies the settlors, trustees and beneficiaries of private express trusts and foreign trusts in respect of which a trustee is resident in Hong Kong, is available to its competent authority. 
Phase 2 Rating Factors Recommendations
Partially Compliant.  In circumstances where Hong Kong trustees of private express trusts or foreign trusts are not Hong Kong financial institutions or lawyers, and the trust neither carries on business in Hong Kong nor derives income which is taxable in Hong Kong, there is no systematic monitoring by government authorities of whether the trustees maintain information or documents pertaining to the identification of settlors and beneficiaries of these trusts.   Hong Kong should monitor whether Hong Kong trustees of private express trusts and foreign trusts maintain information that identifies the settlors and beneficiaries in all cases. 
Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements. (ToR A.2)
Determination Factors Recommendations
The element is in place.   Trustees of private express trusts and foreign trusts are only statutorily required to maintain accounting records where the trust is carrying on business in Hong Kong.  Hong Kong should ensure that trustees of private express trusts and foreign trusts maintain accounting records even where the trust is not carrying on business in Hong Kong.  
Phase 2 Rating Factors Recommendations
Largely Compliant.  In circumstances where Hong Kong trustees of private express trusts or foreign trusts are not Hong Kong financial institutions or lawyers, and the trust neither carries on business in Hong Kong nor derives income which is taxable in Hong Kong, there is no systematic monitoring by government authorities of whether accounting records or underlying documents are being maintained.   Hong Kong should monitor whether Hong Kong resident trustees keep accounting records in all cases that fully meet the international standards and that those records are kept for at least five years. 
Banking information should be available for all account-holders. (ToR A.3)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Compliant.     
Competent authorities should have the power to obtain and provide information that is the subject of a request under an exchange of information arrangement from any person within their territorial jurisdiction who is in possession or control of such information (irrespective of any legal obligation on such person to maintain the secrecy of the information). (ToR B.1)
Determination Factors Recommendations
The element is in place.   Hong Kong has a domestic tax interest requirement with respect to 3 of its 29 exchange of information partners. Hong Kong’s competent authority has contacted the relevant exchange of information partners on a number of occasions to update the respective EOI provisions in line with the standard.   Hong Kong should continue its efforts to ensure that its competent authority has the power to obtain all relevant information with respect to all exchange of information agreements (regardless of their form). 
Phase 2 Rating Factors Recommendations
Compliant.     
The rights and safeguards (e.g. notification, appeal rights) that apply to persons in the requested jurisdiction should be compatible with effective exchange of information. (ToR B.2)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Compliant.     
Exchange of information mechanisms should provide for effective exchange of information. (ToR C.1)
Determination Factors Recommendations
The element is in place.   Three of Hong Kong’s 29 DTCs do not provide for effective exchange of information. Hong Kong is actively pursuing the renegotiation of these DTCs.   Hong Kong should continue its efforts to renegotiate its agreements as necessary so that they provide for effective exchange of information. 
Phase 2 Rating Factors Recommendations
Largely Compliant.  Hong Kong’s legal framework in force during the period under review prevented the exchange of information that preceded the effective date of the EOI agreement, although no requests were received during the period under review that could not be answered due to this limitation.   Hong Kong should monitor the application of its new legislation to ensure that information that precedes the effective date of the agreement can be exchanged, where it relates to a taxable period subsequent to the effective date of the EOI agreement. 
The jurisdictions' network of information exchange mechanisms should cover all relevant partners. (ToR C.2)
Determination Factors Recommendations
The element is in place, but certain aspects of the legal implementation of the element need improvement.   Hong Kong has 26 signed agreements (22 of which are currently in force) which provide for effective exchange of information.  Hong Kong should bring its existing agreements that do not meet the standard up to the standard.  
Hong Kong has been approached by a number of jurisdictions to negotiate a TIEA. Hong Kong has recently amended its domestic laws to allow for exchange of information under TIEAs or other exchange of information arrangements.  Hong Kong should enter into agreements for exchange of information (regardless of their form) with all relevant partners, meaning those partners who are interested in entering into an information exchange arrangement with it. 
Phase 2 Rating Factors Recommendations
Partially Compliant.     
The jurisdictions' mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received. (ToR C.3)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Compliant.     
The exchange of information mechanisms should respect the rights and safeguards of taxpayers and third parties. (ToR C.4)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Compliant.     
The jurisdiction should provide information under its network of agreements in a timely manner. (ToR C.5)
Determination Factors Recommendations
The assessment team is not in a position to evaluate whether this element is in place, as it involves issues of practice that are dealt with in the Phase 2 review.      
Phase 2 Rating Factors Recommendations
Compliant.     

Earlier self-assessment based annual reports entitled Tax Co-operation 2010: Towards a Level Playing Field are also available.