VZCZCXRO9232
RR RUEHCN RUEHGH RUEHVC
DE RUEHHK #1249 1900011
ZNR UUUUU ZZH
R 090011Z JUL 09
FM AMCONSUL HONG KONG
TO RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/SECSTATE WASHDC 8033
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHFR/AMEMBASSY PARIS 0323
RUEHGP/AMEMBASSY SINGAPORE 4077

UNCLAS HONG KONG 001249 
 
SIPDIS 
SENSITIVE 
 
STATE FOR EAP/CM AND EEB/IFD/OIA, TREASURY FOR JOHN 
HARRINGTON, EMBASSY PARIS FOR USOECD O'REILLY 
 
E.O. 12958: N/A 
TAGS: EFIN ECON HK
SUBJECT: HONG KONG SUBMITS TAX AMENDMENTS, HOPES TO AVOID 
TAX HAVEN LABEL 
 
REF: A. HONG KONG 40 
     ¶B. HONG KONG 540 
 
¶1.  (SBU) Summary:  Amendments that will bring Hong Kong into 
compliance with OECD 2004 standards for Exchange of Tax 
Information were submitted to the Legislative Council July 8. 
 Hong Kong officials hope these amendments will boost Hong 
Kong,s competitiveness as an international financial center 
and prevent Hong Kong from being penalized as a "tax haven." 
Legislators are likely to raise privacy issues, but the 
government is confident its proposed safeguard measures will 
allay those concerns.  Financial Services and Treasury 
Undersecretary Clement Leung expects the measures to pass 
before the end of 2009.   End Summary. 
 
¶2.  (U) The Hong Kong Government has drafted amendments to 
its Inland Revenue Ordinance that will enable Hong Kong to 
adopt OECD 2004 standards for Exchange of Information (EoI) 
with comprehensive double taxation agreement (DTA) partners. 
The amendments were submitted to the Legislative Council 
(LegCo) on July 8 for their first reading.  Undersecretary 
for Financial Services and the Treasury Clement Leung said 
LegCo is likely to establish a committee to review the bill 
today and may meet over the summer recess to consider these 
non-controversial amendments. 
 
¶3.  (U) Hong Kong already has DTAs with five partners: 
Belgium (2003), Thailand (2005), Mainland China (2006), 
Luxembourg (2007), and Vietnam (2008), but these agreements 
are based on the 1995 OECD EoI provisions.  The 1995 
provisions allow tax authorities to refuse to collect and 
supply information requested by partners if that information 
is not normally needed for domestic tax purposes.  Hong 
Kong's failure to adopt the updated measures has put current 
negotiations with eleven other jurisdictions on hold, said 
Leung.  The new draft plugs this loophole and specifically 
authorizes Hong Kong's Inland Revenue Department (IRD) to 
collect and share information requested by DTA partners. 
 
===================================== 
Safeguard Measures to Protect Privacy 
===================================== 
 
¶4.  (U) Leung said the government drafted these measures with 
the expectation that lawmakers' primary concern will be for 
the privacy of Hong Kong-based financial information.  The 
Financial Services and Treasury Bureau has included strict 
safeguards to protect an individual's right to privacy and 
the confidentiality of any information provided.  These 
safeguards will be incorporated into each DTA and subject to 
vetting by LegCo.  Each request for information exchange must 
be case-specific (the measures will not allow automatic or 
wholesale information exchanges) and limited to 
treaty-approved categories.  In addition, the requesting 
party must satisfy IRD that the information requested is 
necessary or relevant to enforcement of its own tax laws. 
Information exchanged must be kept confidential and the 
requesting party will not be authorized to share such 
information with third parties.  The IRD will not be 
obligated to provide information that requesting parties 
could not obtain under their own domestic laws.  Finally, IRD 
will be required to notify individuals about whom information 
is sought and allow them to verify the accuracy of 
information shared. 
 
¶5.  (SBU) Hong Kong officials have shared the draft 
legislation with the OECD, which has expressed its support 
and its opinion that the amendments, if adopted, would meet 
OECD 2004 EoI standards.  Leung noted that these amendments 
are part of a longer-term plan to revise the Inland Revenue 
Ordinance, but this bill was broken out and sent forward 
earlier than originally scheduled in response to bills 
currently under consideration in the U.S. Congress (in 
particular, Senator Levin's bill, the Stop Tax Haven Abuse 
Act), recent international pressure on jurisdictions believed 
to be "tax havens", and G-20 discussions.  Leung expects the 
measures to be relatively non-controversial and predicted 
Legco approval before the end of 2009.  The FSTB has already 
begun intensive consultations with Legco members, said Leung, 
and has encountered no substantive concerns thus far. 
DONOVAN