What is a Double Taxation Avoidance Agreement (DTA)?

DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN FRANCE ANDHONG KONGPRESS CONFERENCE CONSULATE GENERAL OF FRANCE8 DECEMBER 2011

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

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

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

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

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

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

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

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

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

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What is a Double Taxation Avoidance Agreement (DTA)?