Beijing tax authorities are expected to launch a review of Hong Kong companies' operations in the mainland following the gazetting of the SAR's first double tax arrangement, tax experts warn. The tax specialists said they would be monitoring the level of 'consultation' between Hong Kong and mainland authorities and any information exchange. Government officials have attempted to allay concerns the arrangement could lead to the disclosure of confidential information. The agreement provides for 'consultation' between mainland and SAR officials arising from difficulties in interpretation or application. KPMG Peat Marwick principal Ayesha Macpherson said the arrangement specifically restricted any exchange to 'an oral exchange of opinions'. 'This is a reflection of the special circumstances [between the two countries]. We will be watching it very closely to see how it is used.' Tax principal Peter Kung said its scope was much narrower than expected arrangements with other countries. 'It is not really a treaty, it is more a memorandum.' He added there was considerable concern the arrangement could prompt mainland officials to review the tax position of Hong Kong companies with mainland operations. The arrangement is aimed at preventing double taxation between the mainland and Hong Kong. Highlights include: Income from shipping, aviation and land transport operations undertaken by Hong Kong enterprises on the mainland will be exempt from mainland income; Profits of a Hong Kong enterprise carrying on a business through a permanent establishment - such as an office or factory - will not be subject to mainland tax; and An individual will not be subject to mainland tax provided he is resident there for less than 183 days in a calendar year. Ms Macpherson said those who paid mainland and Hong Kong tax on a source of income would be allowed to offset their mainland liability. It will apply to income earned on the mainland from July 1 and Hong Kong from April 1.