Proposals to the Taskforce on Economic Challenges on Enhancing the Competitiveness of Hong Kong’s Tax System 向經濟機遇委員會提交 有關提升香港稅制競爭力的建議 Ayesha Macpherson 麥嘉軒 April 2009 2009年4月

In the context of the global financial crisis 稅務政策在對抗全球金融海嘯的作用 Tax policy can be an effective tool to:- 稅務政策能有效地： help overcome challenges of the global financial crisis 協助應付全球金融海嘯帶來的挑戰 support new business opportunities 支持開拓新商機 enhance HK’s competitiveness 提升香港的競爭力 Terms of reference of TFEC include these objectives 經機會的職能範圍亦包括以上目標

Competitiveness of Hong Kong’s Tax System 香港稅制的競爭力 Bauhinia Foundation Research Centre’s Report entitled “A Tax System to Enhance the Business Environment” (A copy of the report is available on the website www.bauhinia.org):- 智經研究中心發表題為「有利營商環境的稅制」的報告（可於 www.bauhinia.org 網站下載） Overall aim of the study研究目的:- To make use of the tax system to enhance HK’s competitiveness 以改善稅制來提升香港的競爭力 Study included研究包括:- A literature review of recent competitiveness studies identifying the future macro-economic goals for HK 參考最近就香港競爭力的研究，以確定香港的未來宏觀經濟目標 A survey of the HK business sector 向商界進行問卷調查 Interviews of senior business executives 專訪商界人士 Interviews of businesses that have recently relocated key functions in a competitor jurisdiction (e.g. Singapore and Macau) 專訪近期把業務遷離香港到其他競爭地區（如：新加坡、澳門）的企業

Hong Kong’s Macro-economic Goals 香港的宏觀經濟目標

Hong Kong’s Macro-economic Goals 香港的宏觀經濟目標 1) Sourcing centre 採購中心 8) Gateway for Mainland’s outbound capital 內地對外投資的平台 2) “Brand Hong Kong” 「香港品牌」 9) Logistics hub 物流中心 3) Centre for Chinese entrepreneurs 內地企業家的境外基地 10) International aviation hub 國際航空中心 4) Asset management centre 資產管理中心 11) International maritime centre 國際海事中心 5) Wealth management centre 財富管理中心 12) Cosmopolitan city for services 服務之都 6) Preferred IPO platform 上市集資的首選平台 13) Headquarters economy 總部經濟 7) International financial intermediation platform for the Mainland 內地的國際金融中介平台 14) Knowledge-based economy 知識型經濟 Source:- Identified from a literature review of recent competitiveness studies 資料來源:- 從參閱就近有關競爭力的研究得出

Business Survey 問卷調查

Ranking of Important Factors稅制須具備的要素 Business Survey Results問卷調查結果 Ranking of Important Factors稅制須具備的要素 Importance of factors for a tax system to be favorable to business 對營商有利的稅制所須具備的要素 Larger organisations viewed “Clear tax laws” as more important than “Low tax rates” 大型機構認為「清晰的稅法」比「低稅率」更重要 Low tax rates低稅率 46% 59% Low tax rates 低稅率 Clear tax laws清晰的稅法 36% 61% Certainty in the practical application of laws 稅法的實際應用夠明確 11% 51% Low compliance cost 低遵從成本 6% Clear tax laws 清晰的稅法 Targeted incentives 稅務優惠 4% 35% More than 1,000 employees 員工人數超過1,000 1,000 employees or less 員工人數1,000名或以下 20 40 60 80 % 10 20 30 40 50 60 % of respondents from respective employee-size groups 受訪者佔所屬組別的比例(%)

Respondents relocated business elsewhere (22% of total respondents) Business Survey Results問卷調查結果 Other Key Issues其他主要議題 Issue 議題 All respondents 所有受訪者 Respondents relocated business elsewhere (22% of total respondents) 曾把業務遷離香港的受訪者 （佔所有受訪者的 22%） Found one or more of key aspects of HK tax laws to be confusing (practical application of source concept, distinction between capital/revenue) 認為香港的稅法最少有一方面是含糊的（按「地域來源」徵稅的實際應用、資本性資產和收益性資產的區分） 38% 50% Supportive of one or both of following:- - Group loss relief & loss carry-back More double tax treaties 支持下列其中或所有建議:- 集團虧損寬免及本年虧損轉回 增加雙重徵稅協定 85% 89% Regarded other jurisdictions as being more attractive than HK from a tax perspective 認為其他地方的稅制較香港吸引 35% 45% Cited by most as the jurisdiction with a more attractive tax system than HK 被認為稅制較香港吸引的地區 Macau 澳門 Singapore 新加坡

Business Interviews 訪問商界人士

優點 弱點 簡單 稅法的實際應用愈來愈不明確 低稅率 香港的稅制缺乏某些在海外普遍採用的做法 行政費用低 稅基狹窄 稅務待遇一致 Business Interviews訪問商界人士 Summary of Perceived Strengths and Weaknesses of HK’s Tax System 綜合受訪人士認為香港稅制的優點及弱點 Strengths 優點 Weaknesses 弱點 1) Simple 簡單 Increasingly uncertain application of tax law 稅法的實際應用愈來愈不明確 2) Low tax rates 低稅率 Tax features available elsewhere are missing in HK 香港的稅制缺乏某些在海外普遍採用的做法 3) Low administrative costs 行政費用低 Narrow tax base 稅基狹窄 4) Has high regard for level-playing field 稅務待遇一致 Effective Profits Tax rates not competitive enough 利得稅稅率方面的優勢不足 5) Confidentiality of taxpayers’ information is safe-guarded 納稅人資料受保密處理 Lack of a clear tax policy that complements HK’s development goals 缺乏清晰及可配合香港經濟目標的稅務政策

Overview of Recommendations 建議概述

Overall assessment總括評估 Overview of Recommendations建議概述 Overall, HK’s current tax system is competitive 整體而言，香港目前在稅制方面仍具競爭力 But with increasing global competition, HK cannot afford to rest on its laurels 但在全球競爭日漸激烈的情況下，香港絕不能安於現狀 Must align HK’s tax system with macro-economic goals 稅制必須配合香港的經濟目標 Study Group has five recommendations on fundamental issues and twelve detailed recommendations 研究小組提出了5項大原則上的建議及12項個別議題的建議

Recommendations on Fundamental Issues 大原則上的建議

Financial Services and the Treasury Bureau Recommendations on Fundamental Issues 大原則上的建議 (1) Tax Policy Unit and Approach to Maintaining Competitiveness 　 成立稅務政策組以維護競爭力 Key roles 主要角色: Analyse and research on international trends 研究及分析國際趨勢 Review and formulate recommendations on how to improve and upgrade tax policies to meet HK’s economic and social objectives 檢討與制訂相關建議以改善及提升稅務政策，配合香港的社會和經濟發展目標 Implement tax changes 執行稅法修訂 Liaise and work with other bureaux to formulate tax policies in line with other government policy objectives 與各政策局緊密聯繫，以制訂跟其他政府政策目標互相配合的稅務政策 Solicit views from business and professional sectors 徵詢商界及專業團體的意見 Financial Services and the Treasury Bureau 財經事務及庫務局 Tax Policy Unit 稅務政策組 Standing Advisory Committee 常務諮詢委員會

Recommendations on Fundamental Issues 大原則上的建議 (1) Tax Policy Unit and Approach to Maintaining Competitiveness 　 成立稅務政策組以維護競爭力 Three-pronged approach to improving competitiveness of HK’s tax system 利用三管齊下的措施 加強香港稅制競爭力 Providing greater certainty 增加明確性 Effecting better international integration 與國際接軌 Anticipating and responding to global trends 預測並回應全球趨勢 Twelve Detailed Recommendations 12 項個別議題的建議

訂立一個新的價值觀，以競爭力作為政策的基本原則，並就以下三個元素作出平衡:- Recommendations on Fundamental Issues 大原則上的建議 (2) Competitiveness as the Underlying Principle to Fiscal Policy 　 財政政策的基本原則 A new value proposition for HK’s fiscal policy based on competitiveness as the key underlying principle, and striking a balance amongst the following principles:- 訂立一個新的價值觀，以競爭力作為政策的基本原則，並就以下三個元素作出平衡:- Certainty 明確性 Efficiency and effectiveness 效率與效益 Low rate 低稅率

(3) Retaining Comparative Advantages 財政政策的基本原則 Recommendations on Fundamental Issues 大原則上的建議 (3) Retaining Comparative Advantages 　 財政政策的基本原則 The following are generally regarded as comparative advantages which should be retained: 香港應保持它的相對優勢，包括： limited number of taxes 稅種少 source concept of taxation 地域來源徵稅原則 tax exemption of profits from the sale of capital assets 出售資本性資產所得的利潤免稅 tax exemption of dividend income 股息免稅 low statutory tax rates 低法定稅率 no tax on death transfers 沒有遺產稅

Recommendations on Fundamental Issues 大原則上的建議 (4) Provide an Across-the-board Favourable Tax Environment 　 提供一個可惠及各行各業的稅制環境 HK should focus on providing an across-the-board favourable tax environment, rather than being distracted by calls for sector/industry specific tax incentives where the cost/benefit is unclear, and which could be perceived as inequitable. 香港應專注於提供一個可惠及各行各業的稅制環境，而不應考慮為特定行業提供稅務優惠。稅務優惠的成本效益並不清晰。同時亦有可能被視為偏袒或不公平，一但開始引進便會引來不同界別對稅務優惠的索求。

(5) Broadening the Tax Base 擴濶稅基 Recommendations on Fundamental Issues 大原則上的建議 (5) Broadening the Tax Base 　 擴濶稅基 There is a general consensus that HK has a narrow tax base. 社會上已有共識認為香港的稅基非常狹窄 Without an alternative new source of revenue, it will be difficult for HK to continue to reduce its direct tax rates in response to international competition, as any reduction will put pressure on HK’s budgetary position. 在沒有新的收入來源的情況下，香港仍然需要依靠直接稅收入去支持公共開支。因此，香港即使面對激烈的國際競爭，可調低直接稅的空間有限。 As a community, HK must continue to study and debate options for broadening the tax base with the aim of reaching a consensus on the appropriate option. 香港應繼續研究和討論，以尋求一個得到各界認同而又可有效地擴濶稅基的方案。

Detailed Recommendations 個別議題的建議

Providing Greater Certainty Detailed Recommendations Providing Greater Certainty Recommendations In the context of the financial tsunami 1) Provide greater certainty in the practical application of the source concept for Profits Tax With increasing global competition under a tough economic climate, a more focussed approach is needed to retain the attraction of a source-based taxation system. Policy decision needed on how the source concept can accommodate new modes of operation necessitated by restructuring to meet challenges of the financial tsunami e.g. processing trade. 2) Provide greater certainty in the determination of source of employment income To remain an international business and financial centre, HK must position itself as an attractive base for mobile executives with responsibilities across multiple jurisdictions. 3) Shorten period for finalisation of tax affairs:- Performance pledge by IRD to review tax returns within one year of submission Shorten time-bar provisions from six to four years Tax losses to be accorded the same timeframe for review as assessable profits To enhance HK’s competitiveness and given the international trend to shorten the time period for finalisation of tax affairs, HK needs to do the same. 4) Introduce participation exemption regime to exempt from Profits Tax gains from the disposal of certain share investments In addition to an expanded tax treaty network, HK’s competitive position as an international business centre can be enhanced with participation exemption. 5) Improving guidance and certainty to taxpayers:- IRD to publish more advance rulings and provide more timely guidance on ad-hoc technical issues Review composition of Board of Review More frequent and timely technical guidance is needed so that taxpayers can accurately anticipate the tax consequences of business changes associated with the financial crisis.

增加明確性 建議 在金融海嘯的情況下 就「按地域來源」徵收利得稅這概念的實際應用增加明確性 個別議題的建議 增加明確性 建議 在金融海嘯的情況下 1) 就「按地域來源」徵收利得稅這概念的實際應用增加明確性 在經濟困境的陰霾下，國際競爭勢必越趨激烈。要維護競爭力，必須維持及鞏固「地域來源稅則」的吸引力。政策必須使「地域來源稅則」能有效地配合企業因金融海嘯而改革的經營模式（例如加工貿易）。 2) 為如何界定僱用入息的來源地增加明確性 要維持作為國際商業及金融中心的地位，香港必須保持它對人材的吸引力，令更多地區總部管理人員及專才以香港為基地。 3) 縮短覆核時限:- 稅局的服務承諾中可加入要在納稅人提交報稅表的一年內提出質詢 將覆核時限由六年減至四年 虧損個案的覆核時限該與盈利個案相同 要提升香港的競爭力，香港須跟隨國際趨勢，縮短確定稅務狀況的期限。 4) 引入參與免稅規則，使特定的股權轉讓毋須繳納利得稅 除了擴大稅收協議網絡，採納參與免稅規則亦可增強香港作為國際商業中心的地位。 5) 為納稅人提供更完善的指引與更高的明確性:- 稅局可公佈更多事先裁定個案及就一些特別的技術性議題適時提供指引 檢討稅務上訴委員會的組成 在應付金融海嘯的情況下，商業活動會從而作出調整，適時為納稅人提供技術指引，能有助納稅人預計相應稅務影響。 Page 20c

Effecting Better International Integration Detailed Recommendations Effecting Better International Integration Recommendations In the context of the financial tsunami 6) Make greater efforts in building a double tax agreement (DTA) network and amend the law to enable HK to comply with the necessary exchange of information (EoI) provisions Increasing international pressure on expanded EoI – e.g. 17 finance ministers’ meeting in Oct. 2008, G20 Declaration. Lack of transparency and full EoI seen as factors adding to the current financial crisis. DTAs can enhance HK’s role as an international business and financial centre and support its macro-economic goals including the goal to be the platform for China’s outbound capital. DTAs can support opening up of new markets e.g. Taiwan, India, Russia. 7) Adopt conventional transfer pricing provisions to enhance HK’s position as a link to the global supply chain The financial crisis has increased the need for public funds and will lead to more attention on transfer pricing as tax authorities around the world seek to protect their domestic tax base. HK needs to introduce a transfer pricing regime to ensure its tax base is not eroded and to reinforce its source basis of taxation. 8) Implement a systematic and timely review of the tax implications of International Financial Reporting Standards International financial reporting standards and the implementation of fair value accounting are being refined in light of the financial crisis. Given the differing objectives of tax and financial reporting, business accounts should be no more than a starting point in assessing tax. Blindly accepting international accounting standards for tax purposes would amount to HK’s tax policy being decided by an international accounting body. Page 21

與國際接軌 建議 在金融海嘯的情況下 建立全面雙重徵稅協定的網絡及修訂法例，包括使香港能夠遵從有關「信息交換」條款的要求 個別議題的建議 與國際接軌 建議 在金融海嘯的情況下 6) 建立全面雙重徵稅協定的網絡及修訂法例，包括使香港能夠遵從有關「信息交換」條款的要求 國際上就擴大信息交換的要求正不斷增加，有關議題於08年10月舉行的17國財長會議及20國領導人峰會聲明（Declaration of the G20 Leaders）中亦有提及。缺乏透明度和全面性信息交換令稅務機關難以打擊跨境逃稅行為，更被視為加劇現時經濟危機的因素之一。 全面雙重徵稅協定能提升香港作為國際商業及金融中心的地位，以及支持香港的宏觀經濟目標，如作為內地對外投資的平台 全面雙重徵稅協定有助開拓新興市場，如台灣，印度，俄羅斯 7) 採用國際慣用的轉讓定價規則，加強香港於連接全球供應鏈中所擔任的角色 金融危機令各國政府的財政壓力增大。全球稅務機關定必更關注轉讓定價，以維護稅基。香港有需要引入轉讓定價規則，以免其稅基被蠶蝕，亦可進一步維護「地域來源徵稅」原則。 8) 有系統地並適時檢討引用國際財務報告準則所帶來的稅務影響 國際財務滙報準則及公允價值會計的執行已因應金融危機而作出修訂。由於稅務與財務滙報的目的不同，財務報表亦只可作為徵稅計算的起點。 若稅務處理方法盲目地跟隨國際會計準則，即等同於將制定香港稅制的權力交予國際會計組織。 Page 21c

Anticipating and Responding to Global Trends Detailed Recommendations Anticipating and Responding to Global Trends Recommendations In the context of the financial tsunami 9) To reduce Profits Tax rate to 15% and introduce a lower rate for businesses with assessable profits of less than $1 million The severity of the current financial crisis has resulted in calls for governments around the world to make use of fiscal stimuli, including tax rate reductions, to mitigate the negative impact. Comparisons of business competitiveness of tax systems often focus on the headline tax rates and HK needs to be seen to be taking positive steps. 10) Enhance tax loss provisions:- Introduce a group loss transfer system Introduce a tax loss carry-back regime The impact of the global financial crisis will result in business losses and cash-flow problems. Tax loss carry-back and group loss relief will help businesses during recessions and encourage more risk-taking and enterprise. 11) Abolish stamp duty on unquoted shares and instruments to:- increase the use of HK incorporated companies reduce administrative burden for stamping To support macro-economic goals and new business opportunities post financial tsunami. 12) Enhance tax deductions:- Provide bonus tax deductions for R&D expenditures at a rate of 150% to 200% Extend the range of purchased IP eligible for tax deductions to include trademarks, brand names, designs etc. Allow 100% outright tax deductions for plant & machinery expenditures incurred for processing trade Page 22

預測並回應全球趨勢 建議 在金融海嘯的情況下 將利得稅稅率調至15%，並就應評稅利潤低於100萬港元企業提供更低的稅率 個別議題的建議 預測並回應全球趨勢 建議 在金融海嘯的情況下 9) 將利得稅稅率調至15%，並就應評稅利潤低於100萬港元企業提供更低的稅率 各國政府正推出各樣財政振興方案，包括調低稅率，以減低金融海嘯帶來的負面影響。由於稅率往往是顯示地區及其稅制競爭力的主要指標之一，香港有需要在這方面作出正面的回應。 10) 修改稅務虧損條例以加強競爭力:- 引入集團虧損寛免機制 引入本年虧損轉回制度 國際金融危機難免構成企業營業虧損和資金周轉困難。引入集團虧損寬免和本年虧損轉回能幫助企業渡過經濟低潮，亦能鼓勵企業繼續投資，帶動經濟活動。 11) 豁免非上市股份及證券的印花稅:- 吸引更多投資者設立香港註冊公司 減低相關的行政負擔 有助在金融海嘯後達成宏觀經濟目標和抓緊經濟機遇。 12) 就知識產權、研究與開發及製造業裝置與機器等開支的 稅項扣減:- 為研發開支提供150%至200%稅項扣減 將給予知識產權的稅項扣減擴至商標、品牌及設計等領域 為加工貿易製造商的裝置與機器開支提供100%稅項扣減 Page 22c

環球金融危機很大可能會令國際稅務競爭愈趨激烈 Key Message 主要信息 Global financial crisis will likely result in more intense international tax competition 環球金融危機很大可能會令國際稅務競爭愈趨激烈 HK’s tax policy should be aligned with its macro-economic goals and other government policy objectives 香港的稅務政策必須配合宏觀經濟目標及其他政策目標 Tax policy review is an ongoing process 稅務政策必須不時檢討 Page 23