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LCQ7: United States Tax Increase Prevention and Reconciliation Act of 2005
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    Following is a question by the Hon David Li and a written reply by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, in the Legislative Council today (June 14):

Question:

     Some companies employing United States (US) citizens to work in Hong Kong, as well as individual US citizens residing in Hong Kong, are concerned that, by significantly lowering the ceiling of housing costs that may be deducted from taxation, the Tax Increase Prevention and Reconciliation Act signed by the US President on the 17th of last month has greatly increased the tax burden of US citizens in Hong Kong.  In this connection, will the Government inform this Council whether:

(a) it has studied the impact of the Act on Hong Kong's attractiveness as a regional base for US companies and as a workplace for US citizens; if so, of the results of the study; if not, the reasons for that;

(b) it has referred to the US Government the concerns of these companies and individuals; and

(c) it intends to make representation to the US Government for Hong Kong to be considered as one of the overseas jurisdictions with high housing costs, hence enabling the US citizens concerned to become eligible for more allowable tax deduction under the provisions of the Act?

Reply:

Madam President,

(a) We have not conducted any formal study on the possible effects of the United States Tax Increase Prevention and Reconciliation Act of 2005 (the Act) on the attractiveness of Hong Kong as a regional base for American companies and a place for American citizens to work.  We understand that the Act, which seeks to change the formula for foreign housing cost deductions, will apply generally to Americans living outside the United States, and not specifically to those living in Hong Kong.  Our preliminary observation is that the attractiveness of Hong Kong as a regional base for American companies to establish and invest, and a place for American citizens to work in would not be eroded as a result of this Act.  Hong Kong's competitiveness is underpinned by the rule of law, an efficient administration, a free flow of information, a sophisticated infrastructure, and a level playing field, all of which are cornerstones of our success in becoming one of the best cities in the world for trade and investment.  Hong Kong's attractiveness would not be altered just because of the enactment of the Act.

(b) We understand that members of the American business community in Hong Kong have already joined a delegation of the Asia Pacific Council of American Chambers of Commerce to Washington, DC.  The delegation will meet with members of the United States Congress and the United States Government to discuss the implications of the Act for Americans living abroad.  In this connection, we do not consider that at this stage it is necessary for Hong Kong Government to approach the United States Government to discuss the implications of the Act on Americans working in Hong Kong.

(c) While we have not provided any views on the Act to the United States Government, we will closely monitor developments in connection with the Act in the United States.

Ends/Wednesday, June 14, 2006
Issued at HKT 11:31

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