Consultation on Automatic Exchange of Financial Account Information in Tax Matters (“AEOI”) - Consolidated Response of the Hong Kong Government

In April to June 2015, the Hong Kong Government launched a consultation exercise to gauge views on how Hong Kong should adapt to the new international standard on AEOI promulgated by the Organisation for Economic Cooperation and Development (OECD). On 12 October 2015, after considering views from the public, the HK Government published a consolidated response and announced that it will refine the legislative proposals as set out in the consultation document for the implementation of AEOI in Hong Kong. The consultation document elicited six major questions from the public and the Government’s response thereto in the consolidated response is summarised as follows: Financial Institutions (FI), non-reporting FIs and excluded accounts The definition of FIs, non-reporting FIs and exempted accounts will remain as originally proposed and that only those FIs and/or financial accounts that are at low risk of being used for tax evasion purposes should be exempted. The Government will include in the proposed legislation that Mandatory Provident Fund Schemes, Occupational Retirement Schemes and Credit Unions registered under the relevant statutes will be "non-reporting FIs" and that dormant accounts will be excluded. Reporting requirements Reportable information from FIs is proposed to be kept to an acceptable minimum according to the OECD’s Common Reporting Standard (CRS) requirements. Due diligence The Government has decided to maintain its initial proposal to impose a mandatory requirement for FIs to carry out the due diligence procedures set out in the CRS to identify and collect information on reportable accounts with account holder's tax residence corresponding to Hong Kong's AEOI partners (so-called "targeted approach"). However, in the light of public feedback, FIs will be allowed to opt for a "wider approach" to cover account holders with other tax residences. Penalties The proposed sanctions on employees of FIs for non-compliance will be refined to confine to those employees of FIs who have willfully caused or permitted the FIs to provide incorrect returns. Confidentiality The consolidated responses clarifies that no specific notification of account holders is required under the CRS for AEOI implementation, but FIs are expected to inform account holders of the possible use of the information collected for AEOI purpose. Filing AEOI returns and implementation timeline The Inland Revenue Department will issue electronic notices, through the AEOI Portal, to all registered FIs in January annually for filing AEOI Returns. FIs are required to lodge the AEOI Returns within five months. FIs would be required to file nil return if there is no reportable account for a particular year. The Government aims to introduce the Bill into Legislative Council in early 2016. Should the legislation be enacted in 2016, FIs will need to commence their due diligence procedures in 2017. The first automatic information exchanges will come into effect by the end of 2018.