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Protests Grow Over HK Tax-Free Plan
Source: Financial Times (1 Mar 2004), Angela Mackay, Hong Kong

March 2004

Opposition is growing to the terms of proposed new legislation to exempt offshore funds from taxation in Hong Kong.

While the funds management industry welcomes the government's plans to implement an exemption, they are concerned that details of the legislation will drive business away.

Last week, the Association of Chartered Certified Accountants said proposed anti-avoidance provisions were "too complicated to follow" and imposed "too much administrative burden" on the industry.

PricewaterhouseCoopers, which made a similar assertion two days later, went further by calling on the government to grant "a blanket exemption from Hong Kong profits tax to genuine and bona fide offshore funds that are managed or advised by a Securities and Futures Commission approved investment adviser".

Robert Grome, head of PwC's regional investment management industry group, said the proposed law, outlined in a consultation paper six weeks ago, did not guarantee certainty.

Existing laws exempt all funds registered with the SFC from paying 17.5 per cent profits tax but this does not specifically extend to thousands of overseas registered funds that invest in Hong Kong securities.

This contrasts with Singapore, where such funds are exempted by statute.

The consultation document also details a series of conditions for exemption that the industry deems too onerous. PwC and the ACCA agree that funds group will find it very difficult to determine whether more than 80 per cent of an offshore fund is owned by non-Hong Kong residents or whether the fund and its investor conduct any other business in the territory.

Earlier, the Hong Kong chapter of the Alternative Investment Management Association said the government should try not to rush through the legislation in the current session to conclude an issue that had troubled the local industry for several years.

"On close examination of the government's proposals, AIMA members are concerned that this legislation will create additional administration costs and other unintended problems, even though the intent of the government is admirable," said George Long, chairman of AIMA in Hong Kong.

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