The Legislative Council of Hong Kong last Wednesday passed the Inland Revenue (Amendment) (No. 3) Bill 2009. The resulting amendments to the Inland Revenue Ordinance ("IRO") would enable Hong Kong to adopt the latest and more liberal international standard of exchange of tax information between Hong Kong and overseas jurisdictions with whom Hong Kong has entered into comprehensive avoidance of double taxation agreements ("CDTAs"). The move is in line with the approach recently adopted by other jurisdictions, such as Singapore.
The new amendments remove the requirement for a "domestic tax interest" to exist before Hong Kong's Inland Revenue Department ("IRD") can exercise its various powers under the IRO. As a result, the IRD may now seek information from any person regarding "any matter… that may affect any liability, responsibility or obligation of any person… under the laws of a territory outside Hong Kong concerning any tax of that territory", and pass on the information obtained to its overseas counterpart, provided that a request for information has been made by such a counterpart under an existing CDTA. Similarly, the IRD may apply to the magistrate for a search warrant, not only in cases where there are reasonable grounds for suspecting that a person has made an incorrect return or supplied false information concerning his Hong Kong tax liabilities under the IRO, but also when there are similar concerns regarding a person's tax liabilities in a territory outside Hong Kong.
Note that in addition to the person whose tax liabilities are under investigation, any person whom the IRD believes to be in possession of relevant information may be required to furnish such information and any related books and records. This obviously raises the issue of confidentiality obligations owed by a bank towards its client when it releases the client's bank account details to the IRD. The Hong Kong government has indicated that it will "deploy the most prudent safeguards" to protect the confidentiality of information exchanged, and has cited as examples to the Legislative Council a number of measures which may be adopted in this regard. Such safeguards however do not form part of the Bill – the implications of this, as well as other aspects of the Bill, will be examined in detail in a subsequent briefing.