As regards comprehensive double taxation relief arrangements, we agree that such agreements can bring economic benefits to Hong Kong under a combination of circumstances. As a first step, we have selected a few target countries and have approached them to see whether they have any interest in negotiating such an agreement with Hong Kong. A number of them have indicated interest in discussing a comprehensive avoidance of double taxation agreement with Hong Kong. We started a first round of negotiation with Denmark on such an agreement and good progress was made. Negotiations with the other countries will be scheduled once we have analysed our respective agreements and agreed on mutually convenient meeting arrangements.
Double taxation arises when two tax jurisdictions levy tax on the same income.
Double taxation can be resolved through bilateral tax agreements which establish the taxing rights of the respective countries. Tax agreements, apart from dealing with double taxation, may also be employed to achieve other fiscal, economic and even political objectives. Unlike most countries which adopt the residence concept, Hong Kong's taxation system works on the territorial source principle whereby only earnings derived in Hong Kong are taxable. Thus, for reasons stated in paragraph 2 above, the problem of double taxation does not generally exist for both Hong Kong and non-Hong Kong residents. Given Hong Kong's position in international trade, the question of tax agreements is often raised by tax practitioners, interested organisations and, from time to time, other governments.