The plan by tax commissioner Wong Ho-sang to establish double tax treaties is in danger of collapsing because of a lack of interest from inland revenue authorities overseas, senior tax sources claim. Mr Wong said last week he would be looking to establish double tax treaties with major trading partners of Hong Kong to save local corporates from paying millions of dollars in foreign taxes. Local companies have been hit hard by high rates of foreign withholding tax on income such as interest, dividends, royalties, professional charges and management fees, leaving them with very high effective rates of tax despite Hong Kong's low tax regime. Tax experts believe that due to its very low tax rates, few trading partners would want to 'play ball' with Hong Kong. Ernst & Young senior tax partner Marshall Byers said: 'Quite frankly, Hong Kong has nothing much to offer other than information.' He said countries such as the United States and other Asian neighbours would have little incentive to enter into tax treaties with Hong Kong. 'It wouldn't exactly be top of their shopping list,' he said. 'They would only enter into such agreements if they were desperate to access information from Hong Kong authorities [on the payment of tax].' There would be some desire on the part of foreign authorities to ensure that tax was not being avoided by multinational companies operating in the territory, he said. As there were other means of checking on companies operating in Hong Kong, it was doubtful if overseas authorities really needed such treaties to get access to information, he said. This was particularly the case given the discrepancy between the taxation rates of Hong Kong and major trading partners including the US. The partner-in-charge of tax at law firm Baker & McKenzie, Michael Olesnicky, said there could be resistance among Hong Kong businesses to allowing foreign authorities access to local tax information. 'The main opposition is likely to be that local companies may not want authorities to exchange information,' he said. He agreed with Mr Byers that in general terms, other regimes had little incentive to enter into double tax treaties with Hong Kong. 'Hong Kong has more to gain than to give,' he said. He said there would be some incentive among trading partners to get access to tax information from the territory, and that this would be Hong Kong's major bargaining chip in hammering out double tax agreements with other countries. Mr Wong said last week there had been no negotiations on double tax treaties with other major trading partners. He conceded he was not confident about establishing a double tax treaty with the US. Hong Kong's Asian neighbours are believed to be uninterested in establishing such agreements with the territory. Mr Wong said many of Hong Kong's trading partners would see the establishment of a double tax treaty with Hong Kong as a desirable objective.
