US/HK: US and Hong Kong Sign Tax Information Exchange Agreement
On March 25, 2014, Hong Kong and the United States signed a tax information exchange agreement (TIEA). Once implemented, this agreement will allow for the exchange of tax-related information upon request from the United States or Hong Kong. It is the first TIEA signed by Hong Kong since the legal framework for entering into TIEAs with other jurisdictions was put in place in July last year.
A Tax Information Exchange Agreement (TIEA) is a legal instrument between tax authorities. TIEAs are used mainly in countries for which a Double Tax Agreement (also known as an income tax treaty or DTA) is not considered appropriate, mainly because the countries in question have no - or low - taxes on income or profits. TIEAs are much narrower in scope than DTAs, but they are more detailed on the subject of information exchange.
TIEAs have been in use since April 2002, when a Model Template for requests of information under Tax Information Exchange Agreements was released as part of a global effort to avoid harmful tax practices. A TIEA is based on an OECD Model Agreement published in 2002 by the Global Forum on Taxation, an institution formed in 2001 as a result of OECD’s Harmful Tax Practices Project. A TIEA document is developed by OECD consequential to its publication of a report entitled "Harmful Tax Competition: An Emerging Global Issue" in 1998. In the report, OECD identifies the lack of effective exchange of information as one of the key criteria in determining harmful tax practices. The TIEA should help promote international co-operation in tax matters through exchange of information. Unlike DTAs, TIEAs do not provide double taxation relief and reduction in withholding taxes on dividend and interest incomes.
TIEAs have often been criticized, because the information exchange specified is not performed automatically and it can be blocked or delayed. See the OECD TIEA site for a comprehensive list of existing agreements.