INCOME TAX

INSTRUCTION NO. 1947/1998

 Dated: April 23, 1998

Subject:- Clarification regarding the applicability of the Double Taxation Avoidance Agreement with the People's Republic of China to Hong Kong.

The Board has received a number of references seeking clarifications regarding the applicability of the Double Taxation Avoidance Agreement (DTAA) between India and People's Republic of China to Hong Kong after the resumption of sovereignty by China from 1st July, 1997.

2. The matter has been examined by the Board in consultation with the Ministry of External Affairs and the Ministry of Law. The Board has been advised that the Double Taxation Avoidance Agreement with China would not automatically extend to the Hong Kong Special Administrative Region (HKSAR) as the "Sino-British Joint Declaration on the question of Hong Kong" provides that the HKSAR may on its own conclude and implement agreements with States in appropriate fields including the economic, trade financial and a monetary. The applicability of international agreements to which China is a party shall be decided by the Central People's Government of China in accordance with the circumstances and needs of Hong Kong and after seeking its views. Further, the Basic Law of the HKSAR provides that the HKSAR shall use its financial revenues exclusively for its own purposes and they would not be handed over to the Central People's Government of China who is also not entitled to levy any tax in this region.

3. In view of the above mentioned provisions, it is hereby clarified that the DTAA between India and China will not be applicable to Hong Kong.

4. The contents of these instructions may please be brought to

the notice of all the officers working in your charge.

F.No. 500/124/97-FTD

S. NARAYANASWAMY
Senior Research Officer (FTD)