WHETHER Hong Kong should sign tax treaties with other jurisdictions has long been a debate in the local business society. The debate was intensified when Hong Kong's old rival for the status of financial centre in Asia, Singapore, offered German banks the benefits of a double taxation agreement and tax relief for offshore capital market operations. With top German bankers warning that they might shift their operations to Singapore to avoid the risks of double taxation here, the Hong Kong government said in August that it was reconsidering the possibility of tax treaties. However, no decision has been made yet. The hope that Hong Kong could benefit from the tax treaties that China has signed with other jurisdictions is dim as the tax regimes between the two places are just too different. And China has given the green light for Hong Kong to sign its own tax treaties. Speaking in Hong Kong in June, foreign tax department director from the State Administration of Taxation, Chen Lianbo, said the Special Administrative Region government would have the autonomy to sign tax treaties under the name of China Hong Kong. He has also made it clear that most of the tax treaties between China and other jurisdictions were not applicable to Hong Kong as they were mostly about enterprise income tax and personal income tax. Hong Kong nevertheless has a relatively simple but totally different tax system: corporate tax is 16.5 per cent and only profits arising in Hong Kong are subject to tax. But what profits arising in Hong Kong are is controversial and the definitions given by the Practice Note issued by the Inland Revenue Department in 1992 were criticised by accountants as too wide. The dilemma is that giving arbitrary definitions to the rules might aggravate the situation as more controversies might arise. Given all these headaches, it is time for Hong Kong to consider signing tax treaties as its reputation of a 'tax haven' is essential for its success. The next question is: what about double taxation between Hong Kong and China? If signing tax treaties between Hong Kong and China might look strange in the eyes of Chinese officials, should there be agreements in another form? Or should we tackle the problem only after Hong Kong companies have suffered from double taxation?