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US suspends bilateral pacts with Hong Kong on shipping tax and extradition

The Trump administration has suspended or terminated three bilateral agreements with Hong Kong covering extradition and tax exemptions, the latest in a series of US moves in response to China's imposition of strict national security laws over the city

20 August 2020 - 19:00

The Trump administration has suspended or terminated three bilateral agreements with Hong Kong covering extradition and tax exemptions, the latest in a series of US moves in response to China's imposition of strict national security laws over the city.

One of the agreements cover reciprocal tax exemptions on income derived from the international operation of ships.



It's not clear how the changes will affect Hong Kong's shipping industry, but according to the website of the Hong Kong Maritime and Port Board, the agreement with the United States 'relieves ship owners of the burden of double tax'.



Hong Kong promotes its low and simple taxes as a benefit for ship owners, and has bilateral double taxation relief arrangement with more than 50 jurisdictions.



According to PwC, ship owners in Hong Kong control about 8 per cent of the world's total tonnage, reports RTHK News.



The other two agreements deal with the surrender of fugitives and the transfer of sentenced people.



In a statement issued by the Hong Kong US Consulate, State Department spokeswoman Morgan Ortagus said: 'As part of the ongoing implementation measures, we notified the Hong Kong authorities on August 19 of our suspension or termination of three bilateral agreements. These agreements covered the surrender of fugitive offenders, the transfer of sentenced persons, and reciprocal tax exemptions on income derived from the international operation of ships.



'These steps underscore our deep concern regarding Beijing's decision to impose the National Security Law, which has crushed the freedoms of the people of Hong Kong.'



The Hong Kong government slammed Washington's move to suspend or terminate the three bilateral agreements, issuing a 'severe reprimand' for its unilateral decision.



'The US' unilateral decision reflects its disrespect for bilateralism and multilateralism under the current administration and should be condemned by the international community,' a spokesman for the HKSAR Government said.



'The HKSAR Government strongly objects to and deplores the US' action, which is widely seen as a move to create trouble in China-US relationship, using Hong Kong as a pawn.'



Commenting on the move by the US to stop reciprocal tax exemptions for shipping proceeds, the spokesman said: 'Should the agreement between Hong Kong and the US be terminated, for the US companies, they would need to pay taxes to both the US and Hong Kong governments, whereas Hong Kong companies will be required to pay tax to the US government only, as their shipping income are exempted from tax liability in Hong Kong by virtue of section 23B of the Inland Revenue Ordinance.



'The termination of the agreement increases the operating costs of the shipping companies concerned, in particular the US companies as they will be subject to double taxation. It would hamper the development of the shipping sector between Hong Kong and US, and is to nobody's interest.' the spokesman said.


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