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Canada-Hong Kong tax treaty moves closer to implementation

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The tax treaty between Canada and Hong Kong has taken another step closer to implementation, following Canadian Minister of Finance Jim Flaherty’s announcement of the Tax Conventions Implementation Act 2013.

The double taxation avoidance (DTA) agreement was signed on November 11 2012, during a period in which Hong Kong had rapidly expanded its tax treaty network.

Last week’s announcement from Flaherty means that once the Act is passed, the DTA with Hong Kong (along with three other treaties) will finally be implemented.

“On March 6 2013, the Canadian government announced the Tax Conventions Implementation Act 2013, which upon passing would implement four recent tax treaties Canada has concluded with Namibia, Serbia, Poland and Hong Kong, as well as amendments to the exchange of tax information provisions in the Luxembourg and Switzerland treaties,” said Brandon Siegal, of McCarthy Tetrault.

The Harper government is championing the Act as a vital step in Canada’s modernisation of its tax system, and it is expected to pass without trouble.

“As these tax treaties and amendments were previously negotiated but not yet in force, the Act is a significant and necessary step towards their implementation. It is expected this legislation will quickly pass and that the treaties will come into effect for Canadians on January 1 2014,” said Siegal.

The Canada-Hong Kong treaty follows the OECD model, as do most of the treaties in Canada’s network (more than 90 are already in force) and has been a long time coming, considering the strong links – particularly trade links – between the two countries.

“This has been a noticeably absent treaty. Hong Kong is the tenth largest importer of Canadian goods and is the second largest market for direct Canadian investment, representing more than $8 billion per year. Likewise, Hong Kong has long been a major investor in Canada,” said Siegal. “The treaty will be a great boon for the 180 Canadian companies operating in Hong Kong, the half million Canadian residents with Hong Kong descent and the 300,000 Canadian citizens currently living in Hong Kong.”

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