Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

How Hong Kong can keep its edge after G7 tax deal

How Hong Kong can keep its edge after G7 tax deal

The city’s government may need to address a lack of whistle-blower protection and modern day slavery legislation if it is to remain competitive, writes Neil Newman.
THE RACE


A race to the bottom is never good news in any business context, as I and a former colleague discovered around 10 years ago when we decided to make the move out of stockbroking – and competing with brokers offering negative commission rates – to “value added” fee-based research, which they could not offer.

What reminded me of those difficult times, and prompted this article, was the agreement reached on June 5 by the G7 on minimum corporate tax rates.

Under a new proposal from the G7, every member country will be compelled to maintain a corporate tax rate no lower than 15 per cent. Even as this is working its way into binding rules that will prevent a tax “race to the bottom”, the member states of the G7, and soon the G20, have been told where the bottom will be.

Faced with big bills post Covid-19, governments will be looking at ways to boost tax revenues, and are likely to offer special tax deals to big businesses.

For example, London post-Brexit needs to secure its financial industry, which currently contributes 16 per cent of GDP, and it may use tax concessions to do that. Elsewhere, the Tokyo metropolitan government, led by Governor Yuriko Koike, has been waiting for a good reason to ring-fence the city’s Nihombashi district to offer supertax deals to asset managers looking to set up their headquarters there, or relocate from Singapore or Hong Kong.

Tokyo’s Nihombashi district pictured in 2019, showing promotional banners for the postponed 2020 Tokyo Olympics and Paralympics.


If it wasn’t bad enough already, I believe Hong Kong’s footprint in asset management is now under a new threat. With our business tax rate of between 15 per cent and 16.5 per cent – or lower when taking into account multinational corporate group tax assessments – we probably won the gold medal in the race to the bottom in Asia.

And the playing field with G7 countries is not level. In terms of international labour laws; the stability of the legal system; and protections against fraud, corruption and modern-day slavery, Hong Kong is looking lacklustre next to the competition.

Throw into the mix the rate at which businesses are looking to exit Hong Kong for all the other reasons we read about daily and we are in trouble.

I hate lists of problems without suggestions for solutions, so I have a few proposals to try and level the playing field before commencing a new round of tax rate arbitrage:

*  Strengthen labour laws, benefits and workforce protection. Make Hong Kong a better place to work to try to slow the rate at which people leave the city. On an individual basis, people will work where they are paid well and feel safe.

*  Ensure that Hong Kong’s legal system retains some elements of common law in the long term. This has already been suggested by the legal profession to keep Hong Kong in good standing internationally.

*  Reinforce laws that tackle commercial misconduct. In some instances this will require new legislation.

Why does all this matter? When it comes to competing for assets to manage, it would be naive to not expect a certain amount of “creative” tax avoidance from wealth managers to ensure their performance is better than everyone else’s, especially those using overseas tax structures. That’s fine as long as it all remains honest, because if it doesn’t and is illegal, then the wealthy client becomes liable.

Furthermore, not all family offices are licensed and subject to regulation as a specific category of asset managers, single family offices generally are not, and this can lead to severe damage to financial markets, such as we have recently seen with the Archegos Capital Management affair.

WHISTLE-BLOWER PROTECTIONS


Unlike in G7 countries such as the UK where “protected disclosure” is clearly defined, Hong Kong and Singapore currently have no specific legislation that defines whistle-blowing, or how a whistle-blower would be protected. There are also no laws in place that require companies to have a whistle-blowing programme, which is surprising given that the integrity of wealth managers is paramount, as they are susceptible to fraud, corruption and harassment. This is something G7 economies have soundly addressed.

MODERN-DAY SLAVERY


This may sound a bit odd, but the absence of a modern-day slavery law may hamper Hong Kong’s future competitiveness. We don’t really think of slavery being associated with finance, but the methods used to enslave a person can be exactly the same no matter how much you earn. And once enslaved, someone can be coerced into doing something they shouldn’t: become party to a fraud, for example, or be pressured into not doing something that they should, such as reporting fraud to the regulator.

We don’t really think of slavery being associated with finance, but the methods used to enslave a person can be exactly the same no matter how much you earn.


According to the Hong Kong-based Mekong Club, there are six ways to put a victim in a compromised position and keep them compliant. Three, I think, are relevant to finance:

*  Oppressive or illegitimate contracts. These may simply be contracts that are presented under duress, perhaps to people recently fired who do not have the means to go to court to contest them. I came across an example recently, a 20 page employment contract with excessive restrictive covenants signed by a stockbroker friend of mine.

*  Physical and emotional abuse. This can be obvious or subtle, inappropriate or manipulative, and can compound in or outside the workplace, and social media
makes it easy. That is why harassment laws are so tough in places like the US and the UK.

*  Threats of violence, directed towards a victim or their family. It may even be just a perceived threat when entwined in the affairs of a powerful family.

COUNT ON CHAN?


Finance Secretary Paul Chan Mo-po
’s plans to make changes in Hong Kong’s tax rules to attract family offices from Singapore have possibly received a sideswipe from the G7. Family offices are categorised as companies for tax purposes and are charged profits tax, but the Inland Revenue Department does not ask for withholding tax, capital gains tax, estate tax, wine tax, and taxes on dividends or interest received on savings.

As service providers managing tax structures and family trusts, family offices are not subject to anti-money-laundering regulations. Only the licensed individuals who work for them are, such as solicitors, accountants, and the like. Family offices also cannot be spot checked. According to the UK’s National Crime Agency, family offices, through lax regulation, are highly exposed to professional enablers who are employed to move illicit funds around the world, out of easy reach of tax and anti-money-laundering reporting.

Invest HK has set up a ‘one stop shop’ to help family offices establish themselves in Hong Kong, with a presence in Guangzhou and Beijing to attract Chinese money, and an office in Brussels to attract money from wealthy European families.

TIME IS RUNNING OUT


All businesses, large and small, are exposed to fraud and corruption. When things go wrong and misconduct is uncovered, the depths of the problem can be quite alarming. What sometimes surprises me is the amount of money rich families have amassed, and yet they remain on the fiddle. Take for example the trouble the Samsung family got themselves into over the past decade and the massive penalties that continue to follow them: huge fines for tax evasion and jail terms for fraud, bribery and stock manipulation.

The family finances were blown wide open by a whistle-blower. He was Samsung’s chief lawyer, but once his identity was revealed he found no more legal work and ended up working the cash register in a branch of a local bakery chain.

If Chan’s mission to attract family wealth to Hong Kong is to be successful, the possibility of getting punished for doing the right thing by whistle-blowing, or even being in a jurisdiction that allows employee coercion, is simply not acceptable. Introducing protections would be relatively easy and help to level the playing field with G7 countries. However, coming up with a new “value-add” for Hong Kong to compete will require a bit more creativity.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
Western Europe Records Hottest June on Record
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
China’s Central Bank Consults European Peers on Low-Rate Strategies
France Requests Airlines to Cut Flights at Paris Airports Amid Planned Air Traffic Controller Strike
Poland Implements Border Checks Amid Growing Migration Tensions
Emirates Airline Expands Market Share with New $20 Million Campaign
Amazon Reaches Milestone with Deployment of One Millionth Robot
Yulia Putintseva Calls for Spectator Ejection at Wimbledon Over Safety Concerns
House Oversight Committee Subpoenas Former Jill Biden Aide Amid Investigation into Alleged Concealment of President Biden's Cognitive Health
Amazon Reaches Major Automation Milestone with Over One Million Robots
Extreme Heat Wave Sweeps Across Europe, Hitting Record Temperatures
Meta Announces Formation of Ambitious AI Unit, Meta Superintelligence Labs
Robots Compete in Football Tournament in China Amid Injuries
China Unveils Miniature Insect-Like Surveillance Drone
Marc Marquez Claims Victory at Dutch Grand Prix Amidst Family Misfortune
Germany Votes to Suspend Family Reunification for Asylum Seekers
Budapest Pride Parade Draws 200,000 Participants Amid Government Ban
Southern Europe Experiences Extreme Heat
Xiaomi's YU7 SUV Launch Garners Record Pre-Orders Amid Market Challenges
Jeff Bezos and Lauren Sanchez's Lavish Wedding in Venice
Russia Launches Largest Air Assault on Ukraine Since Invasion
Massive Anti-Government Protests Erupt in Belgrade
Iran Executes Alleged Israeli Spies and Arrests Hundreds Amid Post-War Crackdown
Hungary's Prime Minister Criticizes NATO's Role in Ukraine
EU TO HUNGARY: LET THEM PRIDE OR PREP FOR SHADE. ORBÁN TO EU: STAY IN YOUR LANE AND FIX YOUR OWN MESS.
Hungarian Scientist to Conduct 30 Research Experiments on the International Space Station
NATO Members Agree to 5% Defense Spending Target by 2035
NATO Leaders Endorse Plan for Increased Defence Spending
U.S. Crude Oil Prices Drop Below $65 Amid Market Volatility
International Astronaut Team Launched to Space Station
Macron and Merz: Europe must arm itself in an unstable world
Germany and Italy Under Pressure to Repatriate $245bn of Gold from US Vaults
Iran Intensifies Crackdown on Alleged Mossad Operatives After Sabotage Claims
Trump Praises Iran’s ‘Very Weak’ Response After U.S. Strikes and Presses Israel to Pursue Peace
Oil Prices Set to Surge After US Strikes Iran
BA and Singapore Airlines Cancel Dubai Flights Amid Middle East Tensions
Trump Faces Backlash from MAGA Base Over Iran Strikes
Meta Bets $14 B on Alexandr Wang to Drive AI Ambitions
FedEx Founder Fred Smith, ‘Heart and Soul’ of the Company, Dies at 80
Chinese Factories Shift Away from U.S. Amid Trump‑Era Tariffs
Pimco Seizes Opportunity in Japan’s Dislocated Bond Market
Labubu Doll Drives Pop Mart to Status as China’s Most Valuable Toy Maker
Global Coal Demand Defies Paris Accord Goals
United States Conducts Precision Strikes on Iran’s Nuclear Sites
US strikes Iran nuclear sites, Trump says
Telegram Founder: I Will Leave My Fortune to Over 100 of My Children
16 Billion Login Credentials Leaked in Unprecedented Cybersecurity Breach
Senate hearing on who was 'really running' Biden White House kicks off
×