Two articles in your newspaper ('New tax treaties may hit airlines', South China Morning Post, August 1, and 'Air-link pacts fuel debate on double taxation', Sunday Morning Post, August 4), show a misunderstanding of our recent initiative to incorporate a double taxation relief article into Air Services Agreements (ASAs).
Rather than attempt a laborious point by point rebuttal, perhaps it would be more helpful if I simply set out the facts. Due to the international nature of aircraft operations, the taxation of income from those operations is a grey area, as the income is mainly derived from activities carried on in international air space.
This makes it difficult to allocate, on a clear-cut basis, income among the countries visited in the course of an international flight. For this reason, many countries have introduced special tax rules for computing airline income, particularly for non-resident airline operators.
Besides, because most countries tax their residents on a worldwide basis, it is common for airline operators to suffer double taxation.
Many countries therefore seek to conclude a double taxation agreement with other countries so as to give them exclusive taxing rights in respect of their resident airlines.
The initiative to incorporate an avoidance of double taxation article in ASAs came both from our international aviation partners and from the local airlines. Under such provisions, Hong Kong will tax the income from international traffic of Hong Kong airlines derived from an agreement country and which has been granted full tax relief by that country.
In return, Hong Kong will forgo the right to tax the income of airlines of the agreement country derived from Hong Kong if such income is subject to tax in the agreement country.