In a written reply to a question in the Legislative Council, the Secretary
for Financial Services and the Treasury, Professor K C Chan, confirmed that
the Hong Kong and Mainland China tax authorities were not, currently, considering
a change in tax rules for cross-boundary workers.
Chan confirmed that, while Hong Kong had raised the suggestion of relaxing
the "183 days of stay" threshold with China’s State Administration
of Taxation, both parties, after discussions, still consider that it should
not be changed as it is an international standard which has been effectively
applied. Furthermore, they have taken into account and balanced the tax interests
of the resident and the source jurisdictions.
Chan pointed to the relevant provisions of the Arrangement between the Mainland
of China and the Hong Kong Special Administrative Region for the Avoidance of
Double Taxation, which apply providing that "the recipient is present in the other
side for a period or periods not exceeding in the aggregate 183 days in any
12-month period commencing or ending in the taxable period concerned.”
In addition, according to the Arrangement between the Macao Special Administrative
Region and the Mainland of China for the Avoidance of Double Taxation, China
and the Macao tax authorities have also adopted the "183 days of stay"
as the threshold to determine which party has the taxing right.
The Hong Kong, Macao and Mainland tax authorities have to refer to the "days
of stay" and not the "actual working days" in determining a person's
tax liabilities in the other side under the Arrangement. This "days of
physical presence" method is an interpretation of the provisions under
the Arrangements, and is also the method commonly adopted by other tax jurisdictions.
It was also pointed out that a day during any part of which, however brief,
the taxpayer is present in a tax jurisdiction counts as a day of presence in
that jurisdiction. Hence, a same-day trip or a stay of less than 24 hours by
a Hong Kong or Macao citizen in the Mainland is counted as a day of presence.
While some European countries have special tax provisions for frontier workers,
under which frontier workers only have to pay tax to the government of their place
of residence and not to the government of their place of work, those provisions
usually include definitions of frontier cities (for example, the distance from
the border) and frontier workers (for example, the frequency of travel between
the two countries).
Furthermore, after any change there would be the question of the allocation of financial resources
such that the government of the place of residence of the frontier workers has
to make financial compensation to the government of the place of work.
Therefore, as Hong Kong's taxation system is based on the territorial principle,
and Hong Kong residents' income derived from China is not subject to tax in
Hong Kong, Chan concluded that a proposal to introduce special tax provisions
for frontier workers would lead to double non-taxation of their income.
It would also be difficult to determine the coverage of the exemption area and
to define frontier workers on an objective basis.
LAWANDTAX-NEWS.COM
