The EU, as of October 5, 2021, will add Hong Kong to its “grey list” of non-cooperative jurisdictions for tax purposes.
The grey list imputes a sense of tax avoidance or harmful tax practices for Hong Kong. However, Hong Kong has until December 31, 2022 to change its legislation, thereby avoiding such characterization ongoing.
To the extent no relevant legislation is enacted, potential punitive measures by the EU include changing its characterization to a “blacklisted” jurisdiction, which would provide denial of deductions for payments made thereto, increased withholding tax, taxation of dividends and administrative rules.
This will be important for many reasons, as other aspects of tax (i.e., DAC 6 reporting) use these designations for potential further reporting obligations.