Uncertainty over tax status 'may send firms elsewhere'

UNCERTAINTY over Hong Kong's tax position after 1997 is causing foreign companies to consider bypassing the territory to set up elsewhere in the region, according to Alan Ross, a tax specialist with Price Waterhouse.

Overseas businessmen and local tax experts are concerned about whether China's tax treaties will apply to the territory after it reverts to mainland rule.

Mr Ross told an international tax seminar that treatment under China's tax treaties would benefit local firms investing overseas, and foreign companies looking to invest in the territory.

But under the Basic Law, Hong Kong and China will have different tax systems, making it difficult for the same treaty to apply to both.

''Can one little area, like Hong Kong, take advantage of China's taxation treaties, where there is a totally different taxation system in use altogether?'' he asked.

The lack of agreement over Hong Kong's future treaty status was making foreign companies concerned about setting up in the territory, he said.


One example was Australian companies.

Because of the confusion about Hong Kong's post-1997 status, the territory has not been registered by the Australian Government.

This means that companies setting up joint ventures lose some tax advantages that come with setting up in government-registered countries, which include most Asia-Pacific countries.

Companies in other countries are also becoming aware of the possible problems that might arise after the handover.


Mr Ross said it was up to China to resolve the problem.

''Frankly, the way these things work, I do not think this will be clarified until we get to 1997,'' he added.


However, he said: ''There are precedents within China; the special economic zones such as Shenzhen are subject to special tax regimes, yet they still benefit from China's tax treaties.''