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The Basic Law of the Hong Kong Special Administration Region of China provides for Hong Kong to have a separate economy and tax system. For sometime there has been concern as to how double taxation problems are to be resolved. Ad hoc administrative arrangements have existed for some time to deal with double taxation problems affecting Hong Kong based employees who are required to work in mainland China from time to time but these arrangements failed to address many other areas in which double taxation problems have existed.
The recent announcement of a Memorandum of Understanding between Mainland China and the Hong Kong SAR based on the standard OECD model double taxation agreement is welcome for two reasons First, it clarifies many areas of double taxation by providing for a tax credit system and, secondly it is an emphatic political statement of the operation of the "one country two systems" principle first enshrined in the Joint Declaration and then entrenched by the Government of the People's Republic of China in...