HK exchange asks China for time to implement tax rules on cross-border deals

HONG KONG, Aug 29 (Reuters): Hong Kong's stock exchange has asked Chinese regulators to give investors time to adjust to any tax rules agreed upon as part of a closely watched cross-border share trading scheme, two people briefed by the city's stock market operator said.
Foreign investors are concerned that the new tax rules could come into force immediately after the scheme is launched, allowing them no time to make the necessary adjustments. There are also worries that the Chinese authorities would apply any taxes retroactively.
The Hong Kong Exchanges and Clearing Ltd is currently negotiating the terms of the scheme, called Hong Kong Shanghai Connect, with the China Securities Regulatory Commission (CSRC), the mainland stock regulator. The scheme is likely to be launched in October.
"Our communication to them is very clear that if and when the new tax rules become effective, we need an exemption period to implement those rules and the new rules shouldn't be with retrospective effect," one of the sources present at a briefing with HKEx told Reuters.
The person declined to be named due to the sensitivity of the matter. The HKEx declined to comment. The CSRC was not immediately available for comment.
The scheme will allow investors to trade Shanghai-listed shares via the Hong Kong stock exchange while mainland investors will be able to trade Hong Kong-listed shares via the Shanghai Stock Exchange.
Currently, China slaps a 10 per cent capital gains tax on all stock purchases made on the mainland, but this tax has never been collected on shares purchased under a range of cross-border foreign investment programs, including the Qualified Foreign Institutional Investor (QFII) and the Renminbi Qualified Foreign Institutional Investor (RQFII) schemes.
Hong Kong does not impose capital gains tax on share purchases.