香港稅務學會 the taxation institute of hong kong joseph yk yau president 5 june 2014 the...

香港稅務學會THE TAXATION INSTITUTE OF

HONG KONG

Joseph YK YAUPresident 5 June 2014

The Expert of Taxation

2

Coverage

Introduction of tax professionals in Hong Kong Presentation of the latest study on the competitiveness of the

Hong Kong tax system Q & A

3

Introduction of tax professionals in Hong Kong

HKICPA TIHK/CTA

Incorporation By statute in 1973By Company Registry &limited by guarantee in1972

Non-profit making Yes YesMembership body Yes Yes

Council memberBy member election andgovernment appointment

By members election

Statutory right to handleaudit

Yes No

Statutory right to handletax

No No

Recognition by ChineseInstitute of Certified TaxAgents

NoYesQianHai of Shenzhenonly

Professional Bodies

4

Objectives

5

The Council

TIHK is governed by 30 Council members

6

Membership

2,700 Members Over 93% of them are CTAs CTA: 80%, Lawyer: 10% , Company Secretary: 5 % and Others: 5 %

80%

10%5% 5% CPA 80%

Lawyer 10%

Company Secretary 5%

Others 5%

7

Career paths for tax professionals

Inland Revenue Department Accounting Firm Law Firm Educational Institution Commercial firm tax department

8

Attributes to be a good tax practitioner

9

Certified Tax Adviser (“CTA”) Examinations

10

Aims

To set a professional standard for new entrants for the profession

To enhance the confidence of employers in persons holding the CTA qualification

11

Contents of CTA Examinations

Total 5 papers (3 hours of written examination each)

12

Awards - Member of the Institute and the designation “Certified Tax Adviser” (CTA) Recognised university graduates and Have successfully passed the Examinations Possess the requisite working experience

13

The National and Local Tax Bureau of Shenzhen jointly announced on 26 December 2012 that CTA of TIHK after meeting certain criteria can practise in Qianhai, Shenzhen either as a partner of a local CICTA firm or to open a local CICTA firm as a minority partner.

14

Operating environment between tax professionals in Mainland China and Hong Kong, SAR

Mainland China Hong Kong, SARBasis of Law Statute Law Common LawLicensing Yes NoExaminationQualification

Yes Yes

Independent fromCentral Government

No Yes

Separate fromAuditors Association

Yes Yes

15

For Enquiries

The Taxation Institute of Hong Kong

Address: 21/F., Kam Sang Building, 255-257 Des Voeux Road Central, Hong Kong.

Telephone: 852 2810 0438

Fax: 852 2523 1263

Website: www.tihk.org.hk

16

Study on the Competitiveness of the

Hong Kong Tax System

17

Background of TIHK’s Study on the Competitiveness of the HK Tax System

Majority of 135 economies covered by a survey done by the World Bank with business : Tax does matter

Tax competitiveness as an important factor for retaining and attracting business

Study conducted by the Institute during March to December 2013

Review the existing tax system of Hong Kong to identify ways of enhancing its competitiveness

Focusing on three areas:– modernising the tax law and tax system to improve certainty,

fairness and tax administration;

– enhancing tax competitiveness; and

– future direction for tax reform

18

Methodology of the study

Literature review Consideration of the HKSAR Government’s overall economic

policies and strategies Reference to tax law and practices of other countries Survey conducted with business community and tax profession

between September and October 2013:– Distribution of a questionnaire with 24 specific questions and 1

open-ended question

– 578 responses received out of 8,119 questionnaires distributed (i.e. 7% response rate)

19

Profile of the survey respondents

20

Overall findings of the study:The 5 key questions

21

One key message emerged from the survey

A clear need to carry out a comprehensive review of Hong Kong’s tax policy and tax system in order to enhance

competitiveness

22

The 13 recommendations made by the Institute

Our recommendations:

1. Shorten the general statutory time bar period for raising tax assessment from 6 years to 5 years

2. Accord a statement of loss the same legal status as an assessment, thus subjecting it to the statutory time bar period

3. Introduce specific and comprehensive transfer pricing legislation in Hong Kong

Issues /concerns for businesses:

•Achieve finality on tax matters within a reasonable short period of time

•Need clarity and certainty for TP related matters e.g. cross-border related party transactions, relief for doubled taxation arising from TP adjustment

•The OECD’s BEPS project - Pressure for Hong Kong to put in place proper transfer pricing law

Area 1: Modernising the tax law and tax system to improve certainty, fairness and tax administration

23

Our recommendations:

4. Amend section 39E of the IRO to grant depreciation allowance for plant or machinery used outside Hong Kong under an import processing arrangement

5. Allow (i) carry back of tax loss for 2 years and (ii) group loss relief

Issues /concerns for businesses:

•Unfairness: no tax relief for capital expenditure incurred on manufacturing plant and machinery despite trading profits are fully taxable

•Better utilisation of tax losses and in line with international tax practice

Area 1: Modernising the tax law and tax system to improve certainty, fairness and tax administration

24

Our recommendations:

6. Abolish the case stated procedures and allow a direct appeal against a Board of Review decision to the High Court

7. Carry out a comprehensive review of the (i) current tax assessment process, (ii) interest and penalty regime and (iii) administration of field audit and investigation cases

Issues /concerns for businesses:

•Current appeal procedures to the Court too cumbersome and outdated

•Lack of separate regime for charging interest and penalty in the IRO

•Reason and basis for issuing estimated assessments, especially in field audit or investigation cases

Area 1: Modernising the tax law and tax system to improve certainty, fairness and tax administration

25

Issues /concerns for businesses:

•More support for SMEs in terms of tax

•Non-competitive tax incentives (as compared to say, Singapore) for attracting businesses to targeted industries in Hong Kong

•Targeted industries/sectors with growth potential e.g. international shipping services, aircraft leasing, local bond market

Our recommendations:

8. Maintain the general corporate tax rate of 16.5%; introduce a 10% corporate tax rate for SMEs that meet all of the following 3 conditions: (i) annual turnover below HK$20 million; (ii) net assessable profits below HK$2 million; and (iii) not part of a group.

9. Introduce tax incentives for the maritime industry, the financial services industry and the green industry in the forms of a wider scope of tax exemption for funds, a concessionary tax rate, a tax holiday, a super tax deduction, etc.

Area 2: Enhancing tax competitiveness

26

Issues /concerns for businesses:

•Tax measures not compatible with the HKSAR Government’s goal of promoting Hong Kong as an intellectual property (IP) trading hub e.g.

• No tax deduction for acquisition of franchises and licences, indefeasible rights of use, etc.

• Up to 3 layers of tax on royalty income in respect of sublicensing businesses in HK

• Uncertainty/inconsistency in determining the source of royalty income

Our recommendations:

10. Revamp the current tax regime for IP rights (IPRs) to make Hong Kong a more attractive place for the licensing and sublicensing of IPRs, including

(i) expanding the current scope of IPR deduction; (ii) using the place of use/exploitation to determine the source of IPR licensing

income; (iii) exempting non-residents from withholding tax in Hong Kong in respect of royalty

income received from Hong Kong sublicensing companies in certain circumstances; and

(iv) granting unilateral tax credit to Hong Kong taxpayers for overseas withholding taxes paid on royalties in a non-treaty context.

Area 2: Enhancing tax competitiveness (Cont’d)

27

Issues /concerns for businesses:

•Current tax law and interpretation not conducive for Hong Kong businesses to engage in R&D activities e.g.

• No super tax deduction for R&D expenses or R&D tax credit, both of which are common tax incentives in the region

• No tax deduction for R&D subcontracted to an overseas group company with lower labor costs

Our recommendation:

11. Introduce tax incentives for R&D activities in the forms of a tax credit, a concessionary tax rate, a tax holiday, a super tax deduction, etc.

Adopt a more liberal interpretation of R&D activities that qualify for tax deduction

Area 2: Enhancing tax competitiveness (Cont’d)

28

Issues /concerns for businesses:

•A simpler, more efficient and less costly tax environment for investors to perform share transactions in Hong Kong

Our recommendation:

12. Charge a fixed nominal amount of stamp duty for the transfer of non-listed Hong Kong shares

Area 2: Enhancing tax competitiveness (Cont’d)

29

Issues /concerns for the HKSAR Government and the society:

•Current tax base too narrow

•Volatility and unpredictability of public revenue

•Aging population

•Long term fiscal sustainability

Area 3: Future direction for tax reform

Our recommendation:

13. Consider the possibility of introducing new type(s) of indirect tax to broaden the tax base in Hong Kong in the long run, such as (i) sales tax on luxury goods, (ii) green taxes, (iii) GST.

30

Concluding remark

“Overall, the study and survey results indicated a clear need for a comprehensive review of Hong Kong’s current tax legislation and tax administration to make them keep pace with the changing business environment and in line with international practices.”

31

Thank you