On January 16, 2017 the Inland Revenue Department of the Government of the Hong Kong Special Administrative Region issued a press release announcing that on that same date the Government of the Hong Kong Special Administrative Region of the People’s Republic of China and the Government of the Republic of Belarus signed an Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital (Hereafter: the DTA).
Although the DTA has been signed, it has not entered into force yet. For the DTA to enter into force, the respective ratification procedures have to have been finalized in both countries.
Below we will discuss a selection of provisions included in the DTA of which we think they might interest our readers.
Pre-amble
The pre-amble contains the following paragraph: “Intending to eliminate double taxation with respect to taxes on income and on capital without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in this Agreement for the indirect benefit of residents of third Parties).”
Taxes covered
Based on Article 2, Paragraph 3 of the DTA (“Taxes Covered”), the existing taxes to which the DTA shall apply are, in particular:
(a) in the case of the Hong Kong Special Administrative Region,
(i) profits tax;
(ii) salaries tax; and
(iii) property tax;
whether or not charged under personal assessment;
(b) in the case of Belarus,
(i) the tax on income;
(ii) the tax on profits;
(iii) the income tax on individuals; and
(iv) the tax on immovable property;
Article 2, Paragraph 4 subsequently arranges that the DTA shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the Agreement in addition to, or in place of, the existing taxes. The competent authorities of the Contracting Parties shall notify each other of any significant changes that have been made in their taxation laws.
Residency
Article 4, Paragraph 3 of the DTA (“Resident”) arranges that where by reason of the provisions of Article 4, Paragraph 1 of the DTA, a person other than an individual is a resident of both Contracting Parties, then it shall be deemed to be a resident only of the Contracting Party in which its place of effective management is situated. The facts to be taken into account in determining the “place of effective management” include the place from which an enterprise is effectively managed and controlled, as well as the place where decision-making at the highest level on the important policies essential for the management of the enterprise takes place. If its place of effective management cannot be determined, the competent authorities of the Contracting Parties shall settle the question by mutual agreement.
Permanent establishment
Article 5, Paragraph 3 of the DTA (“Permanent Establishment”) arranges that a building site or construction or installation project constitutes a permanent establishment only if it lasts more than twelve months.
Immovable property
Article 6, Paragraph 1 of the DTA (“Income from Immovable Property”) arranges that income derived by a resident of a Contracting Party from immovable property (including income from agriculture or forestry) situated in the other Contracting Party may be taxed in that other Contracting Party.
With respect to immovable property Article 13, Paragraph 1 of the DTA (“Gains from the Alienation of Property”) arranges that gains derived by a resident of a Contracting Party from the alienation of immovable property referred to in Article 6 of the DTA and situated in the other Contracting Party may be taxed in that other Contracting Party.
Article 13, Paragraph 4 of the DTA subsequently arranges that gains derived by a resident of a Contracting Party from the alienation of shares in a company deriving more than 50 per cent of its asset value directly or indirectly from immovable property situated in the other Contracting Party may be taxed in that other Contracting Party. However, this paragraph does not apply to gains derived from the alienation of shares quoted on the Stock Exchange of Hong Kong Limited, JSC Belarusian Currency and Stock Exchange or any other stock exchanges as may be agreed between the competent authorities of the Contracting Parties.
Article 21, Paragraph 1 of the DTA (“Capital”) arranges that capital represented by immovable property referred to in Article 6 of this Agreement, owned by a resident of a Contracting Party and situated in the other Contracting Party, may be taxed in that other Contracting Party.
Associated enterprises
Article 9, Paragraph 2 of the DTA (“Associated Enterprises”) contains a so-called appropriate adjustment clause.
Dividends
If the beneficial owner of the dividends is a resident of the other Contracting State, Article 10, Paragraph 2 of the DTA (“Dividends”) maximizes the withholding tax a Source State is allowed to withhold over dividends to 5 per cent of the gross amount of the dividends.
Article 10, Paragraph 6 of the DTA reads as follows:
“Where a company which is a resident of a Contracting Party derives profits or income from the other Contracting Party, that other Contracting Party may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other Contracting Party or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment situated in that other Contracting Party, nor subject the company’s undistributed profits to a tax on the company’s undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other Contracting Party.”
Interest
If the beneficial owner of the interest is a resident of the other Contracting State, Article 11, Paragraph 2 of the DTA (“Interest”) maximizes the withholding tax a Source State is allowed to withhold over such interest to 5 per cent of the gross amount of the interest.
Royalties
If the beneficial owner of the royalties is a resident of the other Contracting State, Article 12, Paragraph 2 of the DTA (“Royalties”) maximizes the withholding tax a Source State is allowed to withhold over such royalties to:
(a) 3 per cent of the gross amount of the royalties for the use of, or the right to use aircraft; and
(b) 5 per cent of the gross amount of the royalties in all other cases.
Article 12, Paragraph 3 defines the term royalties as follows: “The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, or films or tapes used for radio or television broadcasting, any computer software, patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment or for information concerning industrial, commercial or scientific experience. The term “commercial equipment” includes transport vehicles.”
Anti-abuse clause
Article 27 of the DTA (“Anti-abuse Rules”) contains a.o. a so-called Principal Purpose Test.
Other
Furthermore the DTA contains a.o. provisions regarding a Mutual Agreement Procedure (Article 24), regarding the Exchange of Information (Article 25).
Click here to be forwarded to the text of the DTA as available on the website of the Inland Revenue Department of Hong Kong.
Are you looking for other DTAs? Then check our section DTAs & TIEAs, a very efficient way to locate numerous DTAs.
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