Hong Kong in line for surge in illicit fund inflows

Singapore, EU moves to boost transparency may boost city's allure for global tax cheats

PUBLISHED : Wednesday, 15 May, 2013, 12:00am
UPDATED : Wednesday, 15 May, 2013, 5:45am

Hong Kong may see a surge in illicit money inflows in the wake of twin moves by the European Union and Singapore to crack down on tax evasion.

The EU's initiative to capture taxes on an estimated €1 trillion (HK$10 trillion) avoided each year and Singapore's separate move to avoid being caught like Switzerland in a row over international tax disclosure are likely to push money towards more opaque locations.

At a meeting in Brussels yesterday, the European Commission agreed to start negotiations with Switzerland, Liechtenstein, Monaco, Andorra and San Marino to share more tax information with the EU.

"The decision represents an important step in the EU's efforts to clamp down on tax evasion and tax fraud," the European Commission said in a statement.

EU member states are encouraged to identify tax havens and place them on blacklists and non-EU nations will be encouraged to adopt EU tax transparency standards, it said.

Singapore, the world's fourth-biggest offshore financial centre, said yesterday it would adopt new measures to make it easier to share information on potential tax evaders with other countries, including the United States.

The city state said it would sign up to the Organisation for Economic Cooperation and Development's multilateral treaty on sharing tax details.

"What's interesting is how Hong Kong will respond to the increased transparency being demanded of safe havens of wealth," said a Hong Kong-based analyst. "Will Hong Kong move in the direction of offering a new haven for that money by driving that money to Hong Kong, or will it go with the tide of transparency?"

Will Hong Kong move in the direction of offering a new haven for that money by driving that money to Hong Kong, or will it go with the tide of transparency?

Hong Kong and Singapore were among the leading sources of foreign money in Swiss banks, Swiss National Bank data shows.

The capital inflow of foreign direct investment into Switzerland from Asia, Africa and Oceania jumped more than tenfold from 918 million Swiss francs (HK$7.4 billion) in 2010 to 11.5 billion Swiss Francs in 2011, according to the bank.

In 2010, Luxembourg ranked fourth as the target of outward foreign direct investment from mainland China and Hong Kong, receiving US$10.4 billion, according to US-based Global Financial Integrity, which tracks fund flows.

Switzerland and Hong Kong have not signed the OECD's multilateral convention.