GLOBAL FORUM ON TRANSPARENCY AND EXCHANGE OF INFORMATION FOR TAX PURPOSES Peer Review Report on the Exchange of Information on Request HONG KONG (CHINA) 2019 (Second Round) P E E R R E V IE W R E P O R T O N  T H E  E X C H A N G E O F  IN F O R M A T IO N O N  R E Q U E S T H O N G K O N G (C H IN A ) 2 0 1 9 Global Forum on Transparency and Exchange of Information for Tax Purposes: Hong Kong (China) 2019 (Second Round) PEER REVIEW REPORT ONTHE EXCHANGE OF INFORMATION ON REQUEST March 2019 (reflecting the legal and regulatory framework as at December 2018) This work is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of OECD member countries or those of the Global Forum on Transparency and Exchange of Information for Tax Purposes. 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TABLE OF CONTENTS – 3 Table of contents Reader’s guide � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 5 Abbreviations and acronyms � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 9 Executive summary � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 13 Overview of Hong Kong � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 21 Part A: Availability of information � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 27 A�1� Legal and beneficial ownership and identity information � � � � � � � � � � � � � � 27 A�2� Accounting records � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 61 A�3� Banking information � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 76 Part B: Access to information� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 89 B�1� Competent authority’s ability to obtain and provide information � � � � � � � � 89 B�2� Notification requirements, rights and safeguards � � � � � � � � � � � � � � � � � � � � 99 Part C: Exchanging information � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �105 C�1� Exchange of information mechanisms � � � � � � � � � � � � � � � � � � � � � � � � � � � � �105 C�2� Exchange of information mechanisms with all relevant partners � � � � � � � �117 C�3� Confidentiality � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �118 C�4� Rights and safeguards of taxpayers and third parties� � � � � � � � � � � � � � � � � 127 C�5� Requesting and providing information in an effective manner � � � � � � � � � 128 Annex 1: List of in-text recommendations� � � � � � � � � � � � � � � � � � � � � � � � � � � � � �143 Annex 2: List of all exchange of information mechanisms� � � � � � � � � � � � � � � � �145 Annex 3: Methodology for the review � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �149 Annex 4: Hong Kong’s response to the review report � � � � � � � � � � � � � � � � � � � �153 PEER REVIEW REPORT – SECOND ROUND – HONG KONG, CHINA © OECD 2019 READER’S GUIDE – 5 Reader’s guide The Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) is the multilateral framework within which work in the area of tax transparency and exchange of information is carried out by over 150 jurisdictions that participate in the Global Forum on an equal footing� The Global Forum is charged with the in-depth monitoring and peer review of the implementation of the international standards of trans- parency and exchange of information for tax purposes (both on request and automatic)� Sources of the Exchange of Information on Request standards and Methodology for the peer reviews The international standard of exchange of information on request (EOIR) is primarily reflected in the 2002 OECD Model Agreement on Exchange of Information on Tax Matters and its commentary, Article 26 of the OECD Model Tax Convention on Income and on Capital and its commentary and Article 26 of the United Nations Model Double Taxation Convention between Developed and Developing Countries and its commentary� The EOIR standard provides for exchange on request of information foreseeably relevant for carrying out the provisions of the applicable instrument or to the administration or enforcement of the domestic tax laws of a requesting juris- diction� Fishing expeditions are not authorised but all foreseeably relevant information must be provided, including ownership, accounting and banking information� All Global Forum members, as well as non-members that are relevant to the Global Forum’s work, are assessed through a peer review process for their implementation of the EOIR standard as set out in the 2016 Terms of Reference (ToR), which break down the standard into 10 essential elements under three categories: (A) availability of ownership, accounting and bank- ing information; (B) access to information by the competent authority; and (C) exchanging information� PEER REVIEW REPORT – SECOND ROUND – HONG KONG, CHINA © OECD 2019 6 – READER’S GUIDE The assessment results in recommendations for improvements where appropriate and an overall rating of the jurisdiction’s compliance with the EOIR standard based on: 1� The implementation of the EOIR standard in the legal and regulatory framework, with each of the element of the standard determined to be either (i) in place, (ii) in place but certain aspects need improvement, or (iii) not in place� 2� The implementation of that framework in practice with each element being rated (i) compliant, (ii) largely compliant, (iii) partially compli- ant, or (iv) non-compliant� The response of the assessed jurisdiction to the report is available in an annex� Reviewed jurisdictions are expected to address any recommendations made, and progress is monitored by the Global Forum� A first round of reviews was conducted over 2010-16� The Global Forum started a second round of reviews in 2016 based on enhanced Terms of Reference, which notably include new principles agreed in the 2012 update to Article 26 of the OECD Model Tax Convention and its commentary, the availability of and access to beneficial ownership information, and complete- ness and quality of outgoing EOI requests� Clarifications were also made on a few other aspects of the pre-existing Terms of Reference (on foreign com- panies, record keeping periods, etc�)� Whereas the first round of reviews was generally conducted in two phases for assessing the legal and regulatory framework (Phase 1) and EOIR in practice (Phase 2), the second round of reviews combine both assessment phases into a single review� For the sake of brevity, on those topics where there has not been any material change in the assessed jurisdictions or in the requirements of the Terms of Reference since the first round, the second round review does not repeat the analysis already conducted� Instead, it sum- marises the conclusions and includes cross-references to the analysis in the previous report(s)� Information on the Methodology used for this review is set out in Annex 3 to this report� Consideration of the Financial Action Task Force Evaluations and Ratings The Financial Action Task Force (FATF) evaluates jurisdictions for compliance with anti-money laundering and combating terrorist financing (AML/CFT) standards� Its reviews are based on a jurisdiction’s compliance with 40 different technical recommendations and the effectiveness regarding 11 immediate outcomes, which cover a broad array of money-laundering issues� PEER REVIEW REPORT – SECOND ROUND – HONG KONG, CHINA © OECD 2019 READER’S GUIDE – 7 The definition of beneficial owner included in the 2012 FATF standards has been incorporated into elements A�1, A�3 and B�1 of the 2016 ToR� The 2016 ToR also recognises that FATF materials can be relevant for carrying out EOIR assessments to the extent they deal with the definition of ben- eficial ownership, as the FATF definition is used in the 2016 ToR (see 2016 ToR, annex 1, part I�D)� It is also noted that the purpose for which the FATF materials have been produced (combating money-laundering and terrorist financing) is different from the purpose of the EOIR standard (ensuring effective exchange of information for tax purposes), and care should be taken to ensure that assessments under the ToR do not evaluate issues that are out- side the scope of the Global Forum’s mandate� While on a case-by-case basis an EOIR assessment may take into account some of the findings made by the FATF, the Global Forum recognises that the evaluations of the FATF cover issues that are not relevant for the purposes of ensuring effective exchange of information on beneficial ownership for tax purposes� In addition, EOIR assessments may find that deficiencies identified by the FATF do not have an impact on the availability of beneficial ownership information for tax purposes; for example, because mechanisms other than those that are relevant for AML/CFT purposes exist within that jurisdiction to ensure that beneficial ownership information is available for tax purposes� These differences in the scope of reviews and in the approach used may result in differing conclusions and ratings� More information All reports are published once adopted by the Global Forum� For more information on the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes, and for copies of the published reports, please refer to www�oecd�org/tax/transparency and http://dx�doi� org/10�1787/2219469x� PEER REVIEW REPORT – SECOND ROUND – HONG KONG, CHINA © OECD 2019