Experts see pitfalls in cross-border accord

The provision for the exchange of information between mainland and Hong Kong tax-collection authorities is something businesses may be wary of, tax experts said yesterday, commenting on the just-signed agreement to avoid double taxation.

Observers were sceptical despite officials' assurances that the exchange of information is an 'international norm' and limited to information that is necessary for the enforcement of the new pact.

Greeting the arrangement as a step in the right direction, Richard Chow Yeung-tuen, president of the Taxation Institute of Hong Kong, said the key concern for companies doing business on the mainland was what would happen to the information that was exchanged.

'A lot of information is quite sensitive to Hong Kong companies so we really hope that the information will only be used for tax liability purposes,' Mr Chow said.

Jennifer Wong, a partner with tax advisory services firm KPMG, said many companies with mainland operations tended to tell 'different stories to different tax authorities' and the exchange of information would prove problematic for the business community.

She said authorities might see higher tax revenue as a result of successful investigations and audits stemming from the information exchange. 'However, some discrepancies between what is reported to the Hong Kong and mainland tax authorities might be because mainland accounting standards do not conform to internationally accepted standards,' Ms Wong said.