Briefing by the Financial Secretary on Hong Kong’s latest overall economic situation
Discussion
In response to Mr CHAN Chun-ying’s enquiry about the reasons for the number of low-income elderly households reaching a record high in the first quarter of 2017, G Econ advised that the increase in the number of low-income elderly households reflected in large part the trend of ageing population. But she also pointed out that its proportion in all domestic households remained low at 0.3%.
The property market
Mr CHAN Chun-ying expressed concern about the continual surge in the local property prices. Pointing out that some property buyers had asked their family members who did not have residential property in Hong Kong (“eligible family members”) to purchase flats in order to avoid paying the Special Stamp Duty and the new 15% flat rate of ad valorem stamp duty, Mr CHAN considered that investment activities in the residential property market had not slowed down as suggested in the Administration’s discussion paper (i.e. LC Paper No. CB(1)1030/16-17(03)). He called on the Administration to collect relevant information and conduct more in-depth analyses on the investment activities in the residential market.
Annual briefing on the work of the Financial Reporting Council
Discussion
Mr CHAN Chun-ying enquired as to how soon Hong Kong’s auditor regulatory regime would achieve independence and be in line with international standards. He noted that under the existing funding arrangement, FRC was jointly funded by the Companies Registry Trading Fund, the Hong Kong Exchanges and Clearing Limited (“HKEX”), the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and SFC. He asked whether the four parties would increase their respective shares of funding if FRC required more resources for undertaking its work.
CEO/FRC responded that the timetable of the relevant amendment bill for implementing the proposals of the auditor regulatory reform was in the hands of the Government who were preparing the amendment bill and he hoped that the reform would be taken forward as soon as possible. With regard to funding, he advised that based on the Memorandum of Understanding signed among FRC and the four funding parties in 2014, the four parties would contribute on an “equal share” basis with a 5% annual increment until 2019. As additional staff had been recruited in 2016, FRC would consider deploying its reserves to meet the increase in staff costs. He added that FRC’s budget was subject to approval by the Secretary for Financial Services and the Treasury.
Application of Multilateral Convention on Mutual Administrative Assistance in Tax Matters in Hong Kong
Discussion
Mr CHAN Chun-ying enquired about the procedures for Hong Kong to join the Multilateral Convention, given that the Multilateral Convention was only opened for signature by state parties.
DS(Tsy)2 advised that upon the request of Hong Kong, the Central People’s Government (“CPG”) had recently given in-principle approval to extend the application of the Multilateral Convention to Hong Kong. The Government had to amend IRO to provide for the legislative framework for Hong Kong to participate in the Multilateral Convention. Upon enactment of the amendment ordinance, the Government would seek CPG’s assistance to deposit a declaration to OECD for territorial application of the Multilateral Convention to Hong Kong
Mr CHAN Chun-ying and Mr Holden CHOW noted that “simultaneous tax examinations” was one of the mandatory provisions of the Multilateral Convention, but it would be up to a party to decide whether to participate in a particular examination (i.e. item (e) in paragraph 14 of LC Paper No. CB(1)1030/16-17(08)). Mr CHAN further noted that the Government’s position that Hong Kong would not participate in any simultaneous tax examinations and enquired about the reasons involved. Mr CHOW sought details on the purpose of conducting simultaneous tax examinations.
Deputy Commissioner (Technical), Inland Revenue Department, (“DCIR(T)”) explained that simultaneous tax examination referred to an arrangement which jurisdictions, each in its own territory, to examine tax affairs of persons in which they had a common or related interest, with a view to exchanging any relevant information which they so obtained. Given that Hong Kong had been practising a territorial-based tax regime, it appeared unlikely that Hong Kong would need to conduct tax examinations with other jurisdictions. It was therefore the Government’s policy that Hong Kong, as a general rule, would not participate in any simultaneous tax examinations. In addition, Hong Kong would not accept requests from other jurisdictions allowing their representatives to be present at a tax examination of Hong Kong given that “tax examinations abroad” was an optional provision of the Multilateral Convention (i.e. item (f) in paragraph 14 of LC Paper No. CB(1)1030/16-17(08)).