DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN FRANCE AND HONG

DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN FRANCE AND HONG KONG PRESS CONFERENCE CONSULATE GENERAL OF FRANCE 8 DECEMBER 2011

What is a Double Taxation Avoidance Agreement (DTA)? Ø Double taxation arises when two jurisdictions overlap: v The same item of income or profit is subject to tax in each. Ø DTA organizes and provides: v Relief from double taxation v Certainty to investors on tax rights of the Parties to DTA Ø DTA helps the assessment of tax liability Ø DTA provides incentive: v for company to do business v for individuals to move about

History of Negotiation between Hong Kong & France Ø First round as early as 2003 Ø Second round 2004 Ø In 2005 HK endorses OECD’s principles for exchange of information Ø IR(A)O 2010 and Disclosure Rules commenced on 12 March 2010 Ø Signature of France/HK DTA on 21 October 2010 in Paris Ø Entry into force: 1 st December 2011 Ø Commencement date: v France: 1 st January 2012 v HK: 1 st April 2012

Criteria for organizing taxation between the Parties to DTA Ø DTA is drafted on the base of the OECD Model Tax Convention Ø Various technical criteria are used in order to avoid or reduce double taxation: v Residence v Establishment v Nature of income, etc.

Residence Ø Definition of the residence is key in determining where the individual taxpayer belongs to. Ø A Resident of a Party, which activity is exercised in that Party, is liable to tax in that Party for: v Income from employment v Any other income not specifically dealt with in the DTA

Permanent Establishment Ø This is the key criterion for enterprises v In physical terms: a fixed place v In terms of duration: more than 6 months Ø Business profits are taxed in the Party where an enterprise has its permanent establishment

Immovable Property Ø Situation of the property determines the place of taxation Ø Income from such property is taxed by the Party where immovable property is situated Ø Likewise for capital gains from such property

Dual Taxation Withholding tax applies to Ø DIVIDENDS Ø INTEREST Ø ROYALTIES v The payee is liable to tax in the Party where it is a resident, but v the Party of origin taxes also the items at 10% (instead of 25% and 33% before)

Elimination of Double Taxation Ø France: v Exemption from tax on business profits for enterprises located in HK (if profits are exempted under French law); v For other incomes: allowance of a tax credit equal to the amount of the tax paid in HK Ø Hong Kong: v For all incomes: allowance of a tax credit equal to amount of the tax paid in France

Exchange of Information Ø No retrospectif effect Ø No obligations as regards automatic or spontaneous exchange of information Ø Requested information cannot be disclosed to other authorities or a third jurisdiction. Ø Prohibition of « fishing expedition » Ø Obligation for a Party to provide requested information, even in the absence of a specific interest for that Party

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