Hong Kong Tax Alert: 29 January 2013

Provisions of the CDTA

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Anti-avoidance provisions

Article 27 (Miscellaneous Rules) of the CDTA explicitly provide that nothing in the CDTA shall prevent a contracting party from applying the provisions of its domestic laws which are designed to prevent tax avoidance.

Mutual Agreement Procedure (MAP) and arbitration

Similar to all other CDTAs Hong Kong has concluded, the CDTA contains a MAP Article. Under the MAP Article, if the actions of one or both contracting parties result, or will result, in a person being assessed to tax in a manner not in accordance with the provisions of the CDTA, such person can seek remedy by way of the MAP. This would generally involve such person presenting their case to the competent authority of their resident side within two years from the date of the first notification to them of the actions resulting in taxation not in accordance with the provisions of the CDTA.

The competent authority of the contracting party of which such person is a resident, will then consider and resolve the case on its own if possible or, where necessary, endeavor to resolve the case with the competent authority of the other contracting party.

However, if within two years from the presentation of a case the competent authorities are unable to reach an agreement to resolve the case, the CDTA provides an arbitration mechanism. Under the arbitration mechanism, the person initiating the MAP can generally request that any unresolved issues arising from their case be submitted for arbitration, subject to both competent authorities and the person agreeing in writing to be bound by the decision of the arbitration board.

The Protocol to the CDTA further provides that the implementation of reliefs and refunds following a mutual agreement of an arbitration ought to remain linked to the time limits prescribed by the domestic laws of the two contracting parties for commencement of procedures.

Exchange of Information

In the same manner as other CDTAs which Hong Kong has signed since 2010, the CDTA has restricted the exchange of information (EoI) in respect of taxpayers between the two contracting parties to only the types of direct taxes covered by the CDTA.

The Protocol to the CDTA however specifically provides that if in future, under any agreements between Hong Kong and a third jurisdiction which is a member of the Global Forum on Transparency and Exchange of Information for Tax Purposes, Hong Kong agrees to exchange information on taxes other than those covered by this CDTA, then Hong Kong will pursue with expedition a negotiation with Italy to extend the scope of the EoI article of this CDTA to apply to such other taxes.

Avoidance of double taxation

Where the income of a Hong Kong resident is subject to tax in both Hong Kong and Italy, the Hong Kong resident may credit the tax paid in Italy on the relevant income against the Hong Kong tax liability charged on the same. The tax credit available is, however, limited to the Hong Kong tax charged on the same income.

Effective date of the CDTA

The CDTA will only come into force in the tax year following the calendar year in which the relevant ratification procedures are completed. Assuming that the ratification procedures can be completed in 2013, the CDTA shall then have effect as follows:

  • For Hong Kong: for any year of assessment beginning on or after 1 April 2014
  • For Italy: for any income year beginning on or after 1 January 2014

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