On 7 June 2017, the Hong Kong Legislative Council passed the Inland Revenue (Amendment) (No. 3) Bill 2017 which expands the list of Hong Kong's reportable jurisdictions for Automatic Exchange of Information (AEOI) purposes from two to 75. This massive expansion will come into effect on 1 July 2017. Starting on 1 July 2017, Hong Kong financial institutions (HK FIs) will be required to identify, collect and report information of financial accounts held by tax residents of these 75 jurisdictions.

In addition, the Hong Kong Government is taking steps to join the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (Multilateral Convention). The Hong Kong Government proposes adopting a multilateral approach because "a bilateral approach to negotiations and amendments is no longer efficient or effective".1 The Hong Kong Government has obtained the in-principle agreement from the Central People's Government to extend the application of the Multilateral Convention to Hong Kong. Joining the Multilateral Convention will provide Hong Kong with a platform to exchange tax information under AEOI as well as other information exchange standards which are part of the OECD's project against Base Erosion and Profit Shifting (BEPS). To enact the necessary legislative changes, the Hong Kong Government plans to introduce an amendment bill into the Legislative Council in October 2017.

Expansion of the list of reportable jurisdictions

The bill that was passed by the Legislative Council on 7 June 2017 changed the definition of "reportable jurisdiction" so that it is no longer required that a reportable jurisdiction would be a party to a tax treaty or a tax information exchange agreement (TIEA) with Hong Kong. Instead, any jurisdiction that is specified as such in the Inland Revenue Ordinance (Schedule 17E, Part 1) would be considered as a reportable jurisdiction. In addition, the newly-enacted legislation added 73 jurisdictions to the list of reportable jurisdictions, which only included two jurisdictions (Japan and the United Kingdom) before this amendment.

The newly-added reportable jurisdictions are the following: Antigua and Barbuda, Argentina, Australia, Austria, Bahamas, Belgium, Brazil, Brunei Darussalam, Bulgaria, Canada, Cayman Islands, Chile, Mainland China, Colombia, Costa Rica, Croatia, Curacao, Cyprus, Czech Republic, Denmark, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Grenada, Guernsey, Hungary, Iceland, India, Indonesia, Ireland, Isle of Man, Israel, Italy, Jersey, Korea, Kuwait, Latvia, Lebanon, Liechtenstein, Lithuania, Luxembourg, Malaysia, Malta, Mauritius, Mexico, Montserrat, The Netherlands, New Zealand, Norway, Poland, Portugal, Qatar, Romania, Russia, Saint Vincent and the Grenadines, Saudi Arabia, Seychelles, Singapore, Slovak Republic, Slovenia, Spain, South Africa, Sweden, Switzerland, Turkey, United Arab Emirates, Uruguay and Vanuatu.

The newly-added jurisdictions are from the following three categories: (i) jurisdictions which expressed an interest to the Organisation for Economic Cooperation and Development in 2016 in conducting AEOI with Hong Kong; (ii) Hong Kong’s tax treaty partners which have committed to AEOI; and (iii) Member States of the EU.

Under the newly-enacted legislation, starting on 1 July 2017, HK FIs will be required to identify and collect information in relation to accounts held by tax residents of these jurisdictions. HK FIs will be required to submit to the Inland Revenue Department (IRD) the information about accounts held by tax residents of all reportable jurisdictions, even though Hong Kong does not currently have an agreement in place to conduct AEOI with many of these jurisdictions. The first reporting period being from 1 July to 31 December 2017.2 HK FIs will be required to submit the relevant data to the IRD by May 2018. The IRD will conduct the exchange with the AEOI partners in September 2018. In the cases of jurisdictions with which Hong Kong do not have an agreement in place for AEOI, the information will be kept by the IRD and exchanged with the relevant jurisdiction after an AEOI agreement has been concluded with that jurisdiction. In subsequent years, HK FIs are required to collate full year data for all jurisdictions included as reportable jurisdictions. The reporting of accounts held by tax residents of Japan and the UK will cover the full 2017 calendar year.

New Proposal to sign the Multilateral Convention

Until recently, the Hong Kong Government's policy was that Hong Kong should implement AEOI on a bilateral basis with its TIEA partners. Following this policy, Hong Kong has concluded bilateral Competent Authority Agreements (CAAs) for the implementation of AEOI with the following countries: Belgium, Canada, Guernsey, Indonesia, Ireland, Italy, Japan, Korea, Mexico, the Netherlands, Portugal, South Africa and the United Kingdom.

The Hong Kong Government now proposes switching from the bilateral approach to the multilateral approach because "a bilateral approach to negotiations and amendments is no longer efficient or effective."3 In other words, it appears that Hong Kong could not be considered by the OECD and the European Union as complying with the new international information exchange requirements under AEOI and BEPS if it continues implementing CAAs on a bilateral route, and only with its tax treaty and TIEA partners. Therefore, the Hong Kong Government now holds that "there is a practical need for Hong Kong to consider adopting a multilateral approach through an extension of the application of the Multilateral Convention to Hong Kong."

Signing the Multilateral Convention would also provide the legal basis for exchanging the required information under the BEPS minimum standards - namely, automatic exchange of Country-by-Country reports (Action 13) and spontaneous exchange of information of tax rulings (Action 5). The Hong Kong Government stated that "whilst a bilateral approach could be adopted for implementing these initiatives under BEPS, this has become increasingly impractical given the continued enlargement in the scope of tax information exchanges in the international community."

The Hong Kong Government has obtained the in-principle agreement from the Central People's Government to extend the application of the Multilateral Convention to Hong Kong. In general, the Hong Kong Government intends to adopt the mandatory provisions of the Multilateral Convention, while electing that the optional provisions will not apply (or partially apply) to Hong Kong. The Hong Kong Government will introduce an amendment bill to the Legislative Council in October 2017. Upon the enactment of the required amendments, the Hong Kong Government will seek the Central People's Government's assistance with the OECD to extend the application of the Multilateral Convention to Hong Kong.

What HK FIs should do 

On 1 July 2017, HK FIs should start applying the AEOI due diligence and reporting obligations to accounts held by tax residents of 75 reportable jurisdictions.

Any HK FI that maintains one or more reportable accounts must file a notice with the IRD within three months since the first occasion on which it commences to maintain a reportable account. According to the IRD website, given that the AEOI Portal is currently under development and expected to be launched in July 2017, HK FIs may withhold the notification of commencement of maintaining reportable accounts for the time being. Nevertheless, HK FIs maintaining reportable accounts before the launch of the AEOI Portal should (a) register an account under the AEOI Portal, and (b) submit a notification of commencement of maintaining reportable accounts, not later than 30 September 2017.4