THE Government needs to clarify its stand on double taxation after 1997 to ensure that offshore banks do not decamp for other regional financial centres, according to a prominent German banker. Volker Stoeckel, senior vice-president and general manager of the Hong Kong branch of Bayerische Landesbank, said even China had a better regime than Hong Kong's. He said Hong Kong's lack of double-taxation agreements meant that German banks were, for tax reasons, shifting out of Hong Kong and were going into Singapore. Hong Kong's tax regime was mentioned in a recent conference on the territory's future as a financial centre after 1997, but Mr Stoeckel said a low corporate-profits tax regime alone was not enough. 'The problem is that Hong Kong doesn't have any double taxation agreements with other countries. So banks, companies or private individuals are subject to tax in their home country for profits remitted out of Hong Kong,' Mr Stoeckel said. A German company remitting US$10 million in profits to Germany after paying Hong Kong tax of 16.5 per cent, had to pay German taxes - Germany's taxes were close to 50 per cent - although it could offset its Hong Kong tax. In contrast, the same company remitting $10 million from a Singapore or Labuan in Malaysia base did not have to pay tax in Germany, he said. In his letter to Mr Yam, Mr Stoeckel said the difference between Hong Kong's corporate tax of 16.5 per cent and Singapore's concessional 10 per cent was not an important factor. 'As far as German banks are concerned, the biggest disadvantage we are facing is the lack of a double taxation agreement between Hong Kong and Germany,' Mr Stoeckel told Mr Yam. 'This means our Hong Kong branch is effectively taxed at the German rate of close to 50 per cent, which makes our operations uncompetitive when compared with our branches in Singapore and Labuan. 'Both countries enjoy double taxation treaties and we will have no choice [other] than booking our offshore transactions outside of Hong Kong. As a result most German banks have shifted their merchant banking operations to Singapore - Dresdner Bank, Deutsche Bank, WestLB, Commerzbank.' This was detrimental to Hong Kong's future success as a financial centre, Mr Stoeckel said. 'Our only hope is that after 1997, the Double Taxation Agreement with China will come into force, otherwise we would even have to shift our China business to Shanghai. 'It would be appreciated if you could encourage the government to look into this matter. It is difficult to understand why Hong Kong is the only major financial centre in the world, which has no double taxation agreements with other countries.' Mr Stoeckel has also written to the Legislative Council finance constituency representative David Li Kwok-po, deputy chairman and chief executive of The Bank of East Asia. Mr Li raised the matter with Mr Yam, Governor Chris Patten and Vincent Cheng, who chairs the Legco panel on financial affairs. 'I believe this is a subject which deserves careful consideration, ' Mr Li said.