The Government should tax the offshore profits of Hong Kong companies, HSBC Securities said in a renewed call for taxation reform to account for the rising level of Hong Kong investment in the mainland after World Trade Organisation entry. However, a taxation expert warned that any drastic change to Hong Kong's simple, low-tax system could undermine foreign investor interest in setting up headquarters in Hong Kong. Brokerage HSBC Securities cited the case of Singapore, which energetically sought foreign investment but also taxed so-called 'global income' received in Singapore. 'Even if Hong Kong adopts Singapore's tax treatment of global income, the main implication for most companies in the territory would probably be higher professional tax-consultation fees, as Hong Kong has double-taxation treaty agreements with most major countries,' it said. Under the tax system's so-called Territorial Tax Concept, only profit or income derived from business activity in Hong Kong is taxed. HSBC Securities believes this is outdated. It argues the Government will find tax leaking away because of growth in Internet trading and the movement of business into China after the mainland enters the World Trade Organisation. An example was the increasing use by mainland businesses of offshore trading, bypassing Hong Kong, for their exports. The loss of business not only translated into lower economic activity, but reduced the Government's tax revenue. HSBC Securities said successful Hong Kong companies on the mainland were likely to reinvest earnings there, instead of repatriating them to Hong Kong. The only WTO benefit for Hong Kong's economy would be more exports of management services, it said. HSBC Securities said the Government was understood to be concerned about the possible negative impact of changing its tax structure. However, the brokerage said it was essential to find ways to channel profit from overseas investment back to Hong Kong over the long term as overseas investment by Hong Kong companies would continue to gain weight. HSBC Securities suggested double taxation treaties and concessions to selected industries, such as high-technology concerns, might be ways to mitigate the negative impact. It considered this was one of the effective solutions to help improve government revenues. However, tax expert Jennifer Wong Wan How-yee, a KPMG partner, said Hong Kong would lose its attractiveness to foreign investors if the tax structure became complicated. Companies might need to spend more time and effort to make tax arrangements and the proposal would increase the Government's administrative expenses, she said.