The government of Hong Kong on October 5 responded to the EU’s inclusion of Hong Kong in its updated “gray list” of jurisdictions that do not yet comply with certain international tax standards.
In its response, the Hong Kong government stated that it agrees to cooperate in the international tax standards and that it has committed to the EU to amend certain laws by the end of 2022 and implement new measures in 2023.
The government explained that the EU’s concerns relate to double non-taxation in the case of multinationals with no substantial economic activity in Hong Kong that are not subject to tax with respect to certain offshore passive income, such as interest and royalties.
The legislative changes to be introduced will be tailored to target such corporations using passive income to avoid tax across borders, the government said – adding that it will continue to support a territorial and competitive taxation regime. The government plans to hold a consultation on the legislative changes with an aim to minimize compliance burdens.
Working with the EU to address the potential tax avoidance concerns keeps Hong Kong off of the EU’s “black list” – protecting it from becoming subject to defensive tax measures by EU member states for failure to comply with the international norms.
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