Hong Kong’s exchange of information laws are likely to continue to be liberalised after the jurisdiction’s lawmakers passed legislation to enable Hong Kong to enter “stand-alone” tax information exchange agreements as well as an intergovernmental pact on US tax law, lawyers at Baker & McKenzie predict.

The legislation was passed on 10 July.

“One can anticipate the need for continuing reviews and updates to Hong Kong’s EOI laws. Currently, Hong Kong adopts for its CDTAs the 2004 version of the EOI Article in the OECD Model Tax Convention except for certain modifications to address local needs. Accordingly, under Hong Kong’s current approach there is no automatic or spontaneous exchange of taxpayer information,” the firm said in a briefing about the development.

“As international norms continue to develop, one can anticipate further liberalisation of Hong Kong’s EOI laws. Hong Kong tends to make only cautious, incremental changes to its tax system,” it said.

Before the legislation was approved, the Hong Kong government did not have the authority to enter into an inter-governmental agreement with the US over the latter’s FATCA regulations.

“It is generally anticipated that, now that the Bill has been acted into law, the Hong Kong government will wish to negotiate a Model 2 IGA with the US,” the law firm said. (This refers to how non-US governments enable their financial institutions to comply with the US Foreign Account Tax Compliance Act.) A Model 2 IGA

The new Hong Kong legislation is, according to Baker & McKenzie, the “second major step” in recent years to liberalise the jurisdiction’s tax information exchange laws. Before 2010, the Hong Kong Inland Revenue Department could exercise its power to collect taxpayer information only to check a taxpayer’s liability under Hong Kong tax law. This restriction limited the ability of Hong Kong to conclude Comprehensive Avoidance of Double Taxation Agreements with other jurisdictions. In March 2010, Hong Kong’s legislation was modified so Hong Kong’s tax authorities could collect and disclose a taxpayer’s information in response to requests made by the CDTA partners even when the information was not otherwise required for domestic Hong Kong tax purposes.

“Since making that change, Hong Kong has been very successful in negotiating CDTAs with its major trading and economic partners. Currently, Hong Kong has signed 30 CDTAs including agreements with Mainland China, Indonesia, Malaysia, Thailand, Vietnam, the UK, France, Italy, Spain, the Netherlands, Switzerland, Luxembourg, and Canada, among others,” Baker & McKenzie said.