Banking & Finance

Advisory body calls for tax rule changes to attract financial firms from UK to Hong Kong

PUBLISHED : Wednesday, 04 January, 2017, 9:17pm
UPDATED : Wednesday, 04 January, 2017, 11:09pm

Hong Kong should change the tax laws to attract international financial firms to relocate their booking business to the city, according to a research paper published by the Financial Services Development Council.

Florence Yip, convener of the new business committee at the FSDC, a government advisory body, said the reforms should be considered given the changing political environment in Europe.

“The Brexit referendum in June reflected Britain’s decision to leave the European Union, which may prompt some international investment banks and financial firms to move part of their business to Hong Kong,” Yip said at a media briefing on Wednesday.

Yip is a tax partner at accounting firm PwC.

In addition, she said London and many western markets have adopted stringent regulations on the banking and financial sectors since the financial crisis in 2008, which has led some financial groups to consider moving part of their operations to Hong Kong, which is considered to have a more business-friendly regulatory environment.

“If we can amend some of the tax laws to remove the unfairness to some firms and to simply our tax rules in some aspects, it would encourage more international banks, brokers or other financial firms to relocate their research or back offices here,” Yip said. “This would create jobs and enhance Hong Kong as an international financial centre.”

One proposal is to amend tax rules to allow non-bank financial firms, such as investment banks, which are regulated by the Securities and Futures Commission, to be allowed to use their interest expense for tax deductable items in a bid allow them equal tax treatment as banks. She also urged simplified rules for profit tax relating to financial products trading and new offerings. At present, these firms need to calculate how much of these operations are carried out in Hong Kong to determine their tax rate, which Yip said to too complicated.

“If this could be simplified into a concept of 50:50 onshore and offshore operation for these companies’ tax payment, it would encourage more global offerings in Hong Kong,’” she said.

The council also wants the government to give clear guideline on transfer pricing on complex global book trading operations, she added.

Hong Kong now has already signed 35 tax treaties with other markets. Yip said these should be expanded to included Australia, India, the Philippines, Singapore, Taiwan and other markets along the “One Belt, One Road” scheme.

“We believe these tax recommendations, if implemented, will benefit Hong Kong. The FSDC will discuss with Inland Revenue over these proposals in the following months,” Yip said.