Hong Kong Tax Alert: 6 May 2013

Provisions of the CDTA

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Anti-avoidance provisions

Article 26 (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 that 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 three 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 issue with the competent authority of the other contracting party.  Any agreement reached under the MAP shall be implemented notwithstanding any time limits in the domestic laws of the contracting parties.

However, if the competent authorities are unable to reach an agreement to resolve the case within two years from the presentation of the case, the CDTA provides for an arbitration mechanism. The procedure of this arbitration mechanism shall later be established by way of an exchange of notes between the contracting parties.

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 in respect of taxpayers between the two contracting parties to only the types of direct taxes covered by the CDTA.

Avoidance of double taxation

Where the income of a Hong Kong resident is subject to tax in both Hong Kong and Guernsey, the Hong Kong resident may credit the tax paid in Guernsey 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 Guernsey: for any income year beginning on or after 1 January 2014