Amendments to Hong Kong Inland Revenue Ordinance (IRO) in respect of AEOI
2013 Amendments (Legal authority to enter into Tax Information Exchange Agreements)
2016 Amendments (Automatic Exchange of Information legal framework in place)
Update on reportable and Participating Jurisdictions (Schedule 17E)
2017 Inland Revenue (Amendment) (No. 2) Ordinance, effective on 1st July 2017
2018 Inland Revenue (Convention on Mutual Administrative Assistance in Tax Matters) Order , effective 13th July 2018
Glossary
At the London G20 summit back in 2009, the government of the Hong Kong special administrative region (HKSAR) of the PRC was found not to have put in place a legal framework for the transparency and exchange of tax information that is in compliance with the internationally agreed standard. The absence of such a legal framework meant that Hong Kong makes it possible for residents of other jurisdictions to evade the taxes imposed by their home countries, and that posed an imminent threat to Hong Kong's position as an international finance center.
At the close of the London G20 summit, China was included in the list of jurisdictions that have substantially implemented the internationally agreed tax standard (the white list), only to find that Hong Kong special administrative region (Macau as well) needed to make commitment to address its deficiency after the conclusion of the Summit.
To turn the commitment into action, the Government of Hong Kong SAR has since then made several changes to the Inland Revenue Ordinance (the IRO) in compliance with the internationally agreed tax standards, and other ordinances (such as the Personal Data (Privacy) Ordinance) that are relevant to the achievement of the aforesaid objectives.
Amendments to the Inland Revenue Ordinance (2010)
1. Section 49(1A) was added to the Inland Revenue Ordinance:
"The Chief Executive in Council by order declares that arrangements specified in the order have been made with the government of any territory outside Hong Kong, and that it is expedient that those arrangements should have effect, those arrangements shall have effect and, in particular--
(a) shall have effect in relation to tax under this Ordinance despite anything in any enactment; and
(b) for the purposes of any provision of those arrangements that requires disclosure of information concerning tax of that territory, shall have effect in relation to any tax of that territory that is the subject of that provision."
2. Expansion of IRD's power to go beyond the scope of territorial taxation
2.1. Section 51(4AA) was made in addition to section 51(4).
S51(4AA) provides that subsection (4) also applies for the purposes of obtaining full information in regard to any matter (referred to in thissubsection as the matter concerned) that may affect any liability, responsibility or obligation of any person (referred to in this subsection as the person concerned) under the laws of a territory outside Hong Kong concerning any tax of that territory if-
(a) arrangements having effect under section 49(1A) are made with the government of that territory; and
(b) that tax is the subject of a provision of the arrangements that requires disclosure of information concerning tax of that territory,
and, for the purposes of the application of subsection (4) under this subsection, references to “any such matter” and “any such matter as aforesaid” in subsection (4)(a) and (b) are to be construed as references to the matter concerned, and references to “such person” in subsection (4)(a) and (b) are to be construed as references to the person concerned.
2.2. Section 51B (1AA) was made in addition to section 51B(1).
It provides that "Subsection (1) also applies to any tax (referred to in this subsection as the tax concerned) of a territory outside Hong Kong if-
(a) arrangements having effect under section 49(1A) are made with the government of that territory; and
(b) the tax concerned is the subject of a provision of the arrangements that requires disclosure of information concerning tax of that territory,
and, for the purposes of the application of subsection (1) under this subsection, a reference to a person's income or profits chargeable to tax in subsection (1)(a) is to be construed as a reference to a person's income or profits chargeable to the tax concerned or any other sums or values in respect of which a person is chargeable to the tax concerned, and a reference to a person's liability for tax in subsection (1)(i) and (iii) is to be construed as a reference to a person's liability for the tax concerned."
3. Section 80(2D) was added to section 80. It provides that a person who without reasonable excuse give incorrect information in relation to any matter or thing afffecting his or another person's liabilitiy to any tax of a territory outside Hong Kong commits an offence, and is liable at a fine at level 3 (HK$10,000).
4. Subsection (4) of section 51B provides that "any person who obstructs or hinders the Commissioner or an authorized officer acting in the discharge of his duty under subsection (1) or an officer assisting him under subsection (1A) commits an offence and is liable on conviction to a fine at level 3 and imprisonment for 6 months."
Extracts from IRD's Practice Note
Our comments are as follows:
IRD's access and its power to gain access to information
The 2010 amendment to the IRO enables Hong Kong to disclose tax information in response to request from the treaty partners for EoI purpose (section 49(1A). To achieve the EoI purpose, the IRO increases the scope of the IRD's power to collect (S51(4AA)), and also a magistrate's power to issue search warrants for, the information concerning tax of a territory outside Hong Kong for EOI pupose (S51B(1AA)). The 2010 amendment also imposes sactions on a person if he, without reasonable excuse, gives incorrect information concerning tax of a territory outside Hong Kong (S80(2D)), irrespective of whether the person is a tax resident of that territory or not.
Removal of domestic interests requirement
Both section 51(4AA) and section 51B(1AA) are not required for the administration and enforcement of the IRO. But these two newly enacted sections are necessary for the administration and enforcement of the taxes of a territory outside Hong Kong, with which Hong Kong has signed a tax treaty. The IRD will act under the authority of both section 51(4AA) and section 51B(1AA), even if the information is not relevant to the administration or enforement of doemstic tax rules. That is, in the absence of domestic interests.
DTA's concluded consequent upon the 2010 amendment
Since 2010, the number of double tax agreements that Hong Kong concluded with other jurisdictions has increased from 3 in 2010 to 35 in 2016. All the DTA's are signed in line with the latest version of the OECD Model Tax Convention, with the exception of 3 DTA's (the DTA's signed with Belgium, Thailand and Vietnam).
Subsection (4) of section 51
For the purposes of obtaining full information in regard to any matter which may affect any liability, responsibility or obligation of any person under this Ordinance-
(a) an assessor or an inspector may give notice in writing to such person, or to any other person whom he considers may be in possession of information or documents in regard to any such matter as aforesaid, requiring him within such reasonable time as is stated in the notice, and in the form and manner specified in it, to furnish all information in his possession respecting any such matter, and to produce for examination any deeds, plans, instruments, books, accounts, trade lists, stock lists, vouchers, bank statements or other documents which the assessor or inspector giving the notice considers are or may be relevant for the purpose aforesaid:
Provided that in the case of a notice under this paragraph requiring the production of any account kept by a solicitor and relating to the affairs of any client or clients of his, production of a copy of all relevant entries therein respecting any matter upon which information is sought shall be a sufficient compliance with the aforesaid requirement of the notice if the copy is certified by the solicitor as being a correct copy of all relevant entries in such account respecting the matter aforesaid;
(b) an assistant commissioner may give notice in writing to such person, or to such other person, requiring him, at a time and place to be named by the assistant commissioner, to attend and be examined, and upon such examination to answer truthfully all questions put to him, respecting any such matter as aforesaid.
Subsection (1) of section 51B
If the Commissioner, or an officer of the Inland Revenue Department not below the rank of chief assessor authorized in writing by the Commissioner for the purpose (in this section referred to as the authorized officer), satisfies a magistrate, by statement made on oath,-
(a) that there are reasonable grounds for suspecting that a person has made an incorrect return or supplied false information having the effect of understating his income or profits chargeable to tax and has done so without reasonable excuse and not through an innocent oversight or omission; or
(b) that a person has failed to comply with an order of a court made under section 80(1) or (2A) directing him to comply with the requirements of a notice given to him under section 51(1) or (3),
the magistrate may by warrant authorize the Commissioner or authorized officer to exercise the following powers-
(i) without previous notice at any reasonable time during the day, to enter and have free access to any land, buildings, or place where he suspects there to be any books, records, accounts or documents of that person, or of any other person, which may afford evidence material in assessing the liability of the first-mentioned person for tax, and there to search for and examine any books, records, accounts or documents;
(ii) in carrying out any such search, to open or cause to be removed and opened, any article in which he suspects any books, records, accounts or documents to be contained;
(iii) to take possession of any books, records, accounts or documents of that person or that person's spouse, and to make copies of such parts of any books, records, accounts or documents of any other person, as may afford evidence material in assessing the liability of the first-mentioned person for tax;
(iv) to retain any such books, records, accounts or documents for as long as they may be reasonably required for any assessment to be made or for any proceedings under this Ordinance to be completed:
Provided that if the Commissioner or authorized officer shall retain any book, record, account or document for a period of more than 14 days, the person aggrieved may apply in writing to the Board of Review for an order directing the return thereof and the Board of Review, after hearing the applicant or his authorized representative and the Commissioner or his representative, may so order, either unconditionally or subject to any condition which the Board may consider it proper to impose.
See the legal texts of the Inland Revenue (Amendment) Ordinance 2010 [Read]
Amendments to the Inland Revenue Ordinance (2013)
1. Section 49(IB) was added under which the Chief Executive in Council is empowered to allow the HKSAR government to make arrangements for the following two specified purposes:
(a) making arrangement with other jurisdiction in order to afford relief from double taxation;
(b) upon request, exchanging information in relation to any tax imposed by the laws of Hong Kong or territory concerned. That means the jurisdictions with which HK has concluded tax treaties;
2. In respect of returns and information to be furnished to Hong Kong tax authorities, section 51(4)(a) was amended as follows: " an assessor or an inspector may give notice in writing to such person, or any other person whom he consider may be in possession or control of information or documents ... ". Similarly, section 51(4A)(i) was also amended as "... the full names (including aliases) and addresses of any persons ... and any other information in his possession or control which may be helpful in identifying or locating any such persons; ". The phrase "or control" was added immediately to the end of "in possession".
Our Comments
In the wake of the 2013 amendment, the HKSAR government signed several tax information exchange agreements (TIEA) with the following countries:
It is also observed that number of comprehensive double tax agreements (CDTA) Hong Kong has entered into with other jurisdictions increased from 3 in 2010 to 35 at December 2015 since the amendments to the IRO, and that, with the exception for CDTA with Belgium and Tailand, those CDTA's are concluded in compliance with the latest version of the OECD Model Tax Convention.
Amendment to the Inland Revenue Ordinance (2016)
Background of the 2016 amendment
The 2016 Inland Revenue (Amendment) (No. 3) Ordinance became effective on 30th June 2016, with the objective to the implementation of Automatic Exchange of Information ('AEOI') that is in compliance with the Common Reporting Standard ('CRS').
The 2016 amendment covers three aspects:
The Common Reporting Standard (CRS), developed in response to the G20 request and approved by the OECD Council on 15 July 2014, calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. It sets out the required information to be exchanged in respect of a financial account, the scope of reportable accounts, as well as due diligence procedures to be followed by reporting financial institutions.
The Standard consists of the following four key parts:
(i) a model Competent Authority Agreement (CAA), providing the international legal framework for the automatic exchange of CRS information;
(ii) the Common Standard with respect to reporting and due diligence procedures on financial account information;
(iii) the Commentaries on the CAA and the CRS; and
(iv) the CRS XML Schema User Guide.
Due diligence obligations imposed on reporting financial institution
Sections 50B(1), and 50B(2) of the IRO provide that a reporting financial institutions (reporting FI) must
(i) establish, maintain and apply due diligence procedure to identify whether a financial account is a reportable account;
(ii) enable the reporting FI to identify and collect the required information as provided under section 50C(3), and secure that the evidence that relies on and the record of steps taken for carrying out the procedure in relation to a financial account are kept for a period of 6 years commencing from the date on which the due diligence procedures are completed;
(iii) The due diligence procedure as mentioned above shall be designed to identify the jurisdiction of residence of (a) the account holder of a financial account maintained with the reporting FI, and (b) the controlling person of the passive non-financial entity (passive NFE) if the account holder is a passive NFE, and
(iv) The reporting financial institution must incorporate the due diligence requirements in Schedule 17D into those procedures.
Power to issue search warrant
Section 51B(1AAA) provides that the Commissioner or an authorized officer holding a position of the Chief assessors or above, has grounds to suspect that a reporting financial institution has failed to discharge its obligation under section 50B(1) and S50B(2) or to comply with a court order directing the reporting FI to submit a tax return issued under S50C(1), the Commissioner or the authorized officer, after satisfying, by taking statement of oath, the Magistrate and obtained the warrant, has the power, under sub-section 51B(1AAAB), without the requirement of giving advance notice, to enter and have free access to the office premises of the FI’s, at any reasonable time during the day, to examine whether the reporting FI has set up and implement the CDD procedures, collect and keep the required information, and report the same to the Hong Kong IRD.
Section 51B(4) provides that any person who obstructs or hinders the Commissioner or an authorized officer acting in the discharge of his duty under subsection (1) or 1AAAB or an officer assisting him under subsection (1A) commits an offence and is liable on conviction to a fine at level 3 and imprisonment for 6 months.
Section 52BA provides that after receiving advance notice, the reporting FI must allow the tax assessor to enter the office premises to inspect and check whether the reporting FI has properly discharged the obligations under section 50B(1), 50B(2) and 50C(1), as mentioned above.
Penalties for offences relating to reporting financial institutions
Under section 80
Sections 80(2E) and (2F), Section 80B(1) to Section 80B(9) are enacted to enforce the administration of section 50B(1), 50B(2), and 50C(1) respectively.
Section 80(2E) - A person commits an offence if the person, in making a self-certification that is required to be collected under Schedule 17D by a reporting financial institution-
(a) makes a statement that is misleading, false or incorrect in a material particular; and
(b) knows, or is reckless as to whether, the statement is misleading, false or incorrect in a material particular.
Section 80(2F) - A person who commits an offence under subsection (2E) is liable on conviction to a fine at level 3(HK$10,000).
Under section 80B
Section 80B(1): A reporting financial institution commits an offence if the institution, without reasonable excuse
(a) fails to comply with a requirement under
(i) section 50B(1) or (2);
(ii) section 50C(1); or
(iii) section 50D(1), (2), (3) or (4);
(b) fails to comply with a requirement of a notice given to it under section 51B(1AAAD) or 51BA(6); or
(c) obstructs or hinders an assessor in the exercise of the powers under section 51BA(2).
Section 80B(2): For subsection (1)(a)(i) and (ii), engaging a service provider under section 50H does not in itself constitute a reasonable excuse.
Section 80B(3): A reporting financial institution that commits an offence under subsection (1) is liable on conviction to a fine at level 3, and the court may order the institution, within the time specified in the order
(a) (for subsection (1)(a) or (b)) to do the act that the institution has failed to do; or
(b) (for subsection (1)(c)) to allow and facilitate an assessor to exercise the powers under section 51BA(2).
Section 80(4) says that, in the case of an offence under
(a) subsection (1)(a)(ii) for contravening section 50C(1); or
(b) subsection (1)(b) for contravening section 51B(1AAAD) or 51BA(6),
the reporting financial institution is liable to a further fine of $500 for every day or part of a day during which the offence continues after conviction.
Section 80(5): A reporting financial institution commits an offence if the institution does not comply with an order of the court under subsection (3), and is liable on conviction to a fine at level 4 (HK$25,000).
Sections 80B(6) and (7): A reporting financial institution commits an offence if the institution
(a) in purported compliance with the requirement to furnish a return under section 50C(1), provides any information in the return that is misleading, false or inaccurate in a material particular, and—
(i) knows the information is misleading, false or inaccurate in a material particular;
(ii) is reckless as to whether the information is misleading, false or inaccurate in a material particular; or
(iii) has no reasonable ground to believe that the information is true or accurate; or
(b) after a return has been furnished to the Commissioner in purported compliance with section 50C(1)
(i) discovers misleading, false or inaccurate information in the return; and
(ii) without reasonable excuse, fails to notify the Commissioner of the discovery within a reasonable time.
Then it is liable on conviction to a fine at level 3 (HK$10,000).
Sections 80B(8) and (9): A reporting financial institution commits an offence if the institution, with intent to defraud, provides any information that is misleading, false or inaccurate in a material particular in a return furnished under section 50C(1). A reporting financial institution that commits an offence under subsection (8) is liable
(a) on summary conviction to
(i) a fine at level 3; and
(ii) imprisonment for 6 months; or
(b) on conviction on indictment to
(i) a fine at level 5; and
(ii) imprisonment for 3 years.
Comments
The 2016 amendment is a modification of the domestic legal rules, which is to ensure that HKSAR government can fulfill its obligations in the following areas: availability of information, access to information, and exchange of information on request.
All the three amendments mean that first, Hong Kong now stands ready for the third round of peer review by Global Forum with 2016 terms of reference on exchange of information on request (EOIR); second, it has put in place the legal framework for AEIO which is in compliance with the CRS, and stands ready for entering competent authority agreement (CAA) with partner jurisdictions.
The names of the participating jurisdictions are expected to be published in the government gazette by the Secretary for Financial Services and the Treasury as amendment to Schedule 17E of the IRO before the end of 2016.
The amendment adds the following schedules to the IRO :
Latest Update on Schedule 17E
In respect of Hong Kong, the information of reportable jurisdicitons and participating jurisdictions (committed to adopting AEOI by 2018 and 2019) is included in the lists under schedule 17E to the Inland Revenue Ordinance (Cap 122) respectively. [read]
The Secretary for the Financial Services and the Treasury is responsible for the updating and amendment of the list of participating and reportable jurisdictions under the authority of section 50J of the IRO.
The latest update information is available at the OECD's automatic exchange portal for all participating jurisdictions [read]
A reportable jurisdiction is one with which Hong Kong has concluded a competant authority agreement, either on a reciprocal or non-reciprocal basis.
Inland Revenue (Amendment) (No. 2) Ordinance 2017
The Amendment Ordinance, effective on 1st July 2017, is mainly to –
Legal texts
2016 Inland Revenue Amendment (No. 3) Ordinance [Read]
2017 Inland Revenue (Amendment) (No. 2) Ordinance 2017, effective on 1st July 2017 [read]
2018 Inland Revenue (Convention on Mutual Administrative Assistance in Tax Matters) Order, effective on 13th July [read]
OECD documents
lnternational tax standards
The internationally agreed tax standards serve as a model for the vast majority of the bilateral tax conventions entered into by OECD and non-OECD countries and are the international norm for tax co-operation. The standards require:
In short, Internationally agreed tax standard, which was developed by the OECD in co-operation with non-OECD countries and which was endorsed by G20 Finance Ministers at their Berlin Meeting in 2004 and by the UN Committee of Experts on International Cooperation in Tax Matters at its October 2008 Meeting, requires exchange of information on request in all tax matters for the administration and enforcement of domestic tax law without regard to a domestic tax interest requirement or bank secrecy for tax purposes. It also provides for extensive safeguards to protest the confidentiality of the information exchanged.
Common reporting standards
The Common Reporting Standard (CRS), developed in response to the G20 request and approved by the OECD Council on 15 July 2014, calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. It sets out the financial account information to be exchanged, the financial institutions required to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions.
The AEOI standard consists of the following four key parts:
Definitions under Section 50A of IRO
Account holder, in relation to a financial account maintained by a financial institution—
(a) subject to paragraphs (b) and (c), means the individual or entity listed or identified by the financial institution as the holder of the account;
(b) if the account is held by an individual or entity, other than a financial institution, for the benefit or account of another individual or entity as an agent, custodian, nominee, signatory, investment advisor or intermediary, means that other individual or entity;
(c) if the account is for a cash value insurance contract or an annuity contract that has yet to reach maturity, means—
(i) the individual or entity that is entitled to access the cash value, or change the beneficiary, of the contract; or
(ii) if there is no such individual or entity mentioned in subparagraph (i)—
(A) the individual or entity named as the owner in the contract (if any); and
(B) the individual or entity with a vested entitlement to payment under the terms of the contract (if any); or
(d) if the account is for a cash value insurance contract or an annuity contract that has reached maturity, means the individual or entity that is entitled to receive a payment on the maturity.
It means an NFE that falls within any of the following descriptions—
(a) in terms of the NFE’s gross income and its assets—
(i) for the calendar year or other appropriate reporting period preceding the year in which the determination as to whether the NFE is an active NFE is made, less than 50% of the NFE’s gross income is passive income; and
(ii) less than 50% of the assets held by the NFE during that calendar year or period are assets that produce, or are held for the production of, passive income;
(b) the stock of the NFE or the related entity of the NFE is regularly traded on an established securities market;
(c) the NFE is—
(i) a governmental entity;
(ii) an international organization;
(iii) a central bank; or
(iv) an entity wholly owned by one or more of the entities mentioned in subparagraphs (i), (ii) and (iii);
(d) the NFE does not function, or does not hold itself out, as an investment fund (including a private equity fund, venture capital fund, leveraged buyout fund, or any investment vehicle whose purpose is to acquire or fund companies, and then to hold interests in those companies as capital assets for investment purposes) and—
(i) 80% or more of the activities of the NFE consist of holding, in whole or in part, the outstanding stock of, or providing financing and services to, one or more subsidiaries that engage in trades or businesses other than the business of a financial institution (holding or group finance activities); or
(ii) if less than 80% of the activities of the NFE consist of the NFE’s holding or group finance activities, the sum of the NFE’s holding or group finance activities and the NFE’s other activities that generate income other than passive income constitute in total 80% or more of the activities of the NFE;
(e) not more than 24 months have elapsed since the date of the incorporation, formation or constitution of the NFE and the NFE—
(i) is not yet operating a business and has no prior operating history; and
(ii) is investing capital into assets with the intent to operate a business other than that of a financial institution;
(f) the NFE was not a financial institution in the past 5 years, and is in the process of—
(i) liquidating its assets; or
(ii) is reorganizing with the intent to continue or recommence operations in a business other than that of a financial institution;
(g) the NFE falls within all of the following descriptions—
(i) the NFE is primarily engaged in financing and hedging transactions with or for its related entities that are not financial institutions;
(ii) the group of the related entities mentioned in subparagraph (i) is primarily engaged in a business other than that of a financial institution;
(iii) the NFE does not provide financing or hedging services to any entity that is not its related entity;
(h) the NFE falls within all of the following descriptions—
(i) the NFE is established and operated in its jurisdiction of residence, and—
(A) is established and operated exclusively for religious, charitable, scientific, artistic, cultural, athletic or educational purposes; or
(B) is a professional organization, business league, chamber of commerce, labour organization, agricultural or horticultural organization, civic league or an organization operated exclusively for the promotion of social welfare;
(ii) the NFE is exempt from income tax in its jurisdiction of residence;
(iii) the NFE has no shareholders or members who have a proprietary or beneficial interest in its income or assets;
(iv) the applicable laws of the NFE’s jurisdiction of residence or the NFE’s formation documents do not permit any income or assets of the NFE to be distributed to, or applied for the benefit of, a private person or non-charitable entity other than—
(A) pursuant to the conduct of the NFE’s charitable activities;
(B) as payment of reasonable compensation for services rendered; or
(C) as payment representing the fair market value of a property which the NFE has purchased;
(v) the applicable laws of the NFE’s jurisdiction of residence or the NFE’s formation documents require that, on the NFE’s liquidation or dissolution, all of its assets are to be distributed to a governmental entity or other non-profit organization, or be escheated to the government of that jurisdiction or any political subdivision of that government;
S50A(4) provides that for paragraph (d) of the definition of active NFE in subsection (1), a subsidiary of an NFE is an entity whose outstanding stock is either directly or indirectly held, in whole or in part, by the NFE.
In relation to an entity that is not a trust, such as a corporation or a partnership, the controlling person means an individual who exercises control over the entity.
Where an entity is a corporation, an individual exercises control over the entity if
(i) the individual (a) owns or controls, directly or indirectly including through a trust or bearer share holding not less than 25% of the issued share capital of the entity; (b) is directly or indirectly entitled to exercise or control the exercise of not less than 25% of the voting rights at general meetings of the entity; or (c) exercises ultimate control over the management of the entity.
(ii) the entity is acting on behalf of another person, over whom the individual exercises control.
Where an entity is a partnership, an individual exercises control over the entiy if
(i) individual (a) is entitled to or controls directly or indirectly not less than 25% of the capital or profits of the entity; (b) is directly or indirectly entitled to exercise or control the exercise of not less than 25% of the voting rights in the entity; or (c) exercises ultimate control over the management of the entity; or
(ii) the entity is acting on behalf of another person, over whom the individual exercises control
Where an entity is a trust, an individual exercises control over the entity if the individual
(i) is entitled to a vested interest in not less than 25% of the capital of the property of the entity, whether the interest is in possession or in remainder or reversion and whether it is defeasible or not;
(ii) is the settlor of the entity;
(iii) is the protector of the entity; or
(iv) exercises ultimate control over the management of the entity; or
Where an entity is not a corporation, partnership or trust, an individual exercises control over the entity if
(i) the individual ultimately owns or controls the entity; or
(ii) the entity is acting on behalf of another person over whom the individual exercists control.
Detailed due diligence requirement means the procedures as laid down in Schedule 17D, which shall apply to new and pre-existing financial accounts.
financial account (財務帳户) means any of the following accounts maintained by a financial institution—
(a) a custodial account;
(b) a depository account;
(c) (if the financial institution is an investment entity but not an advising manager within the meaning of subsection (12)) any equity interest or debt interest in the financial institution;
(d) (if the financial institution is not an investment entity) any equity interest or debt interest in the financial institution, if the class of interests was established with the purpose of avoiding reporting the required information under section 50F(1) and (2);
(e) any cash value insurance contract and any annuity contract issued or maintained by the financial institution, other than a non-investment-linked, non-transferable immediate life annuity that is issued to an individual and monetizes a pension or disability benefit provided under an account that is an excluded account,
but does not include an excluded account.
Section 50A(12) provides that for paragraph (c) of the definition of financial account in subsection (1), an advising manager is an entity that falls within the definition of investment entity in that subsection solely because it—
(a) renders investment advice to, and acts on behalf of; or
(b) manages portfolios for, and acts on behalf of,
a customer for the purpose of investing, administering, or managing financial assets deposited in the name of the customer with a financial institution other than the entity.
Investment entity (投資實體) means—
(a) a corporation licensed under the Securities and Futures Ordinance (Cap 571) to carry out one or more of the following regulated activities (as defined by section 1 of Part 1 of Schedule 1 to that Ordinance)—
(i) dealing in securities;
(ii) trading in futures contracts;
(iii) leveraged foreign exchange trading;
(iv) asset management;
(b) an institution registered under the Securities and Futures Ordinance (Cap 571) to carry out one or more of the following regulated activities (as defined by section 1 of Part 1 of Schedule 1 to that Ordinance)—
(i) dealing in securities;
(ii) trading in futures contracts;
(iii) asset management;
(c) a collective investment scheme authorized under the Securities and Futures Ordinance (Cap 571);
(d) an entity that primarily conducts as its business one or more of the following activities or operations for its customers—
(i) trading in—
(A) money market instruments, including cheques, bills, certificates of deposit, and derivatives;
(B) foreign exchange;
(C) exchange, interest rate and index instruments;
(D) transferable securities; or
(E) commodity futures;
(ii) individual and collective portfolio management;
(iii) otherwise investing, administering, or managing financial assets or money on behalf of other entity or individual; or
(e) an entity—
(i) that is managed by a custodial institution, a depository institution, a specified insurance company, or an entity mentioned in paragraph (a), (b), (c) or (d); and
(ii) whose gross income is primarily attributable to investing, reinvesting, or trading in financial assets,
but does not include an entity that is an active NFE solely because it falls within any of the descriptions in paragraphs (d), (e), (f) and (g) of the definition of active NFE in this subsection;
Jurisdiction of residence (居留司法管轄區)
It means a territory of which an individual or entity is a resident for tax purposes.
A reportable account is a financial account--
(i) that has been identified as such under the due diligence requirement in Schedule 17D, and
(ii) that is held by (A) at least one reportable person; or (B) a passive NFE with at least one controlling person being a reportable person.
Reportable jurisdiction (申報稅務管轄區) means a territory outside Hong Kong—
(a) that is a party to an arrangement having effect under section 49(1A) and requiring disclosure of information concerning tax of the territory; and
(b) that is specified in column 1 of Part 1 of Schedule 17E;
A reportable person means an individual or entity that is a resident for tax purposes of a reportable jurisdiction or an estate of a decedent who was a resident for tax purposes of a reportable jurisdiction; but does not include
(i) a corporation the stock of which is regularly traded on an established securities markets;
(ii) a corporation that is a related entity of a corporation mentioned in (i);
(iii) a government entity;
(iv) an international organization;
(v) a central bank; or
(vi) a financial institution
Reporting financial institution
A reporting financial institution is one
(a) that is resident in Hong Kong (excluding any branch of the financial institution located outside Hong Kong; or
(b) a branch located in Hong Kong of a financial institution that is not resident in Hong Kong,
but does not include a non-reporting financial institution.
Non-financial institution
NFI is specified under Part 2 of Schedule 17C below
1. Government entity;
2. International organization;
3. Central bank;
4. Hong Kong Monetary Authority;
5. Pension fund of government entity, international organization, central bank or HKMA;
6. Broad participation retirement fund;
7. Narrow participation retirement fund;
8. Qualified credit card issuer;
9. Exempt collective investment vehicle;
10. Trustee-documented trust;
11. Grant Schools Provident Fund and Subsidized Schools Provident Fund;
12. Mandatory provident fund schemes and occupational retirement schemes;
13 Credit union.
Section 50C(3) and section 50F provides that the required information as below:
(1) A return furnished under section 50C must include the name and identifying number (if any) of the reporting financial institution.
(2) The return must includes the requried information for each reportable account.
If the account holder is an individual who is a reportable person, the name, address, date and place of birth, tax residence, the tax identification number (TIN) of the individual, the account number and account balance or value at the end of the reporting period of the individual account holder.
If the account holder is an entity that is a reportable person, the name, address, residence, the tax identification number (TIN) of the entity, the account number and account balance or value at the end of the reporting period of the account holder.
If the account holder is an entity and at least one controlling person of the entity is a reportable person, the name, address, tax residence, the tax identification number (TIN) of the entity; and the name, address, date and place of birth, tax residence, the tax identification number (TIN) of each reportable person, the account number and account balance or value at the end of the reporting period of the account holder.
For a custodial account—
(i) the total gross amount of interest paid to the account, or in respect of the account, during the specified information period or other appropriate reporting period;
(ii) the total gross amount of dividends paid to the account, or in respect of the account, during the specified information period or other appropriate reporting period;
(iii) the total gross amount of other income generated in respect of the financial assets held in the account, and paid to the account, or in respect of the account, during the specified information period or other appropriate reporting period; and
(iv) the total gross proceeds from the sale or redemption of financial assets paid to the account during the specified information period or other appropriate reporting period in respect of which the reporting financial institution acts as a custodian, broker, nominee, or otherwise as an agent for the account holder;
For a depository account, the total gross amount of interest paid to it during the reporting period.
For any account in respect of which the reporting financial institution is the obligor or debtor, other than a custodial account or a depository account—the total gross amount paid to the account holder in respect of the account during the specified information period or other appropriate reporting period, including the aggregate amount of any redemption payments made to the account holder during that period.
A passive non-financial entity (passive NFE) is:
(a) an NFE that is not an active NFE; or
(b) a financial institution that—
(i) falls within the description in paragraph (e) of the definition of investment entity in this subsection;
(ii) is not a participating jurisdiction financial institution; and
(iii) is not a financial institution in Hong Kong.
Passive income (被動收入) means the portion of gross income that consists of—
(a) dividend;
(b) interest;
(c) income equivalent to interest;
(d) rent and royalties (other than rents and royalties derived from the active conduct of a business undertaken, at least in part, by the employees of an NFE);
(e) annuities;
(f) the excess of gains over losses from the sale or exchange of financial assets that gives rise to the passive income mentioned in any of paragraphs (a), (b), (c), (d) and (e);
(g) the excess of gains over losses from transactions (including futures, forwards, options and similar transactions) in any financial assets;
(h) the excess of foreign currency gains over foreign currency losses;
(i) net income from swaps; or
(j) amounts received under cash value insurance contracts;
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