Source:
https://scmp.com/comment/insight-opinion/article/2095852/how-hong-kong-can-shed-its-reputation-tax-haven Comment
How Hong Kong can shed its reputation as a tax haven
Kalina Tsang says the government’s half-hearted attempt to enforce better information sharing with other jurisdictions to combat cross-border tax evasion does not go far enough, and it should be bolder
An Oxfam research report ranks Hong Kong as the world’s ninth-worst tax haven and a favourite spot to which major European banks shift their handsome profits. Photo: Bloomberg
More than a year after the Panama Papers scandal, Hong Kong’s image as a conduit for multinational companies to avoid paying large sums of tax to their governments is undiminished. In fact, an Oxfam research report ranks Hong Kong as the world’s ninth-worst tax haven and a favourite spot to which major European banks shift their handsome profits.
The good news is that the Hong Kong government has shown some intention to salvage its reputation by submitting the Inland Revenue (Amendment) (No. 3) Bill 2017 to the Legislative Council in April. The bill seeks to conclude bilateral pacts for the automatic exchange of financial account information in tax matters with 74 other tax jurisdictions. Such cooperation is vital for combating cross-border tax avoidance.
As welcome a move as this is, it is unclear whether the government is really pulling its weight. There are some glaring omissions in the list of 74 jurisdictions, when compared with the list in the OECD’s multilateral instrument to fight tax evasion, the Convention on Mutual Administrative Assistance in Tax Matters. The Hong Kong plan ignores five major tax havens – Panama, Bermuda, the British Virgin Islands, Barbados and Monaco – which are all signatories of the OECD convention.
And, should Hong Kong join the treaty, it would enter into a pact with its 109 jurisdictions all at once, rather than sign them one by one. Yet, this more efficient route has been not taken. Why?
Representatives of the Financial Services and Treasury Bureau said that the multilateral route, though desirable, would prove too burdensome for Hong Kong financial institutions as they would need to keep track of information of tax citizens from 100-plus jurisdictions. A list of 74, they said, would be a compromise palatable to the industry and still satisfy the fiscal transparency demands of the Organisation for Economic Cooperation and Development and the European Union.
The truth is that, despite the government’s enthusiasm for the bilateral approach, Hong Kong has formally signed agreements with only nine jurisdictions, while the government is postponing signing with the remaining 65. Its bilateral commitments, then, are obviously nothing more than window dressing.
Joining a multilateral pact is critical to fighting cross-border tax avoidance, which has cost governments of developing countries billions of dollars in tax revenue that could have been spent on basic services that are essential for social development. With the bill on Legco’s agenda, this is the government’s chance to show its commitment to ending the tax haven era.
Kalina Tsang is head of Oxfam’s Hong Kong, Macau, Taiwan Programme