Mainland tax officials query Hong Kong MPF contributions

Mainland tax authorities have started asking about Hong Kong Mandatory Provident Fund (MPF) account contributions, the South China Morning Post reported on 11 October. A Shanghai tax bureau official telephoned one of the newspaper’s journalists at the end of last month, saying “we understand that the MPF has been categorised as a type of offshore trust”, before asking about his mainland tax payments during his two-year stint in Shanghai and the monthly contributions he and his employer make to his MPF account in Hong Kong.

Shanghai tax bureau treats MPF as a type of offshore trust

The journalist explained on the call that the MPF is a de facto pension fund mandated by Hong Kong law for all wage earners, and that labelling it an “offshore trust” — a tool usually seen as the preserve of the wealthy — was far-fetched. He added that just as Hong Kong’s Inland Revenue Department would not try to collect tax from mainland social security accounts, it would be outrageous for the mainland to tax the MPF, a pension and retirement savings fund.

Beijing case: SMS reminder to declare “offshore trusts”

The report also notes that a colleague in the paper’s Beijing bureau earlier received a text message from the city’s tax service issuing a “warm reminder” to promptly declare any holdings in “offshore trusts” and complete the required tax declaration and payments. The clampdown on offshore wealth has been running for several months, initially targeting trust structures used by China’s wealthiest families, and the enquiries suggest the scope is widening.

Official: routine record collection, not a tax demand

The Shanghai official repeatedly stressed that the journalist was not facing a tax demand and that the call was “nothing more than part of our routine work collecting and updating records”, described as canvassing opinions. She personally agreed that pension and retirement savings should not be taxed, and said she would relay his suggestions — including that unclear policy could affect Shanghai’s ability to lure global talent — to her supervisors.

Background: flat 20% tax on offshore trust income

In July, China’s Ministry of Finance and the State Taxation Administration announced that all income in offshore trusts would face a flat 20 per cent tax, applying at each stage of a trust’s life cycle: the transfer of assets into the trust, income earned during its operation, and its eventual closure. The report says the campaign is designed to boost local government finances; economists broadly accept the right to collect taxes under the law but have raised concerns that aggressive or unpredictable enforcement could stifle economic vitality.