Jurisdiction - Hong Kong
Reports and Analysis
Hong Kong – Court Refuses to Enforce Foreign Tax Debts against Assets Held in Hong Kong.


28 September, 2011


Cido Car Carrier Service Ltd v. Woori Bank (Hong Kong Branch)


The Hong Kong branch of a Korean bank froze a Hong Kong company’s Hong Kong bank account in response to a request from the Korean tax authority. The bank notified its customer of its decision to comply with the Korean request, and that the accounts would be frozen until further notice.


The Hong Kong company, a subsidiary of a Korean company, sought an injunction in Hong Kong to restrain the bank branch from enforcing the Korean tax claim, and to remove the stop on the accounts.


In a short and sharp judgment, the Court of First Instance held that:


• a claim brought for the purpose of collecting a foreign tax debt must be rejected;

• the Korean tax claim cannot be enforced in Hong Kong in the absence of a treaty or similar agreement (Hong Kong has not entered into any such arrangements); and

• the bank branch, in assisting the foreign tax authority to collect a foreign tax debt, breached its contract with the customer.


The decision was not appealed.


Implications for Banks


The decision applies equally to Hong Kong banks as well as foreign bank branches in Hong Kong.


A Hong Kong bank account, and the relationship between the bank in Hong Kong and its customers, are generally subject to Hong Kong law.


A Hong Kong bank or branch should therefore not assist a foreign tax authority to collect a foreign tax debt from a Hong Kong branch account.


The Hong Kong courts will not readily construe bank account terms to deprive a Hong Kong customer of its proper protection against the efforts of a foreign tax authority to collect payment of foreign tax, even where there is seemingly clear contractual authority for the Hong Kong branch to pay over the funds. The judgment suggests that the Hong Kong courts will read down implied customer consents in this regard.


The decision confirms the already uncomfortable conflict of laws position that many foreign banks face, in that the head office is subject to and required to comply with foreign law, which can conflict with the Hong Kong law governing the Hong Kong branch and its local customer relationships.


To mitigate the risk of customer disputes and litigation, banks should establish internal policies and procedures for dealing with requests from foreign government authorities (including foreign tax authorities). As a part of this process, banks should clearly understand whether and to what extent they can comply with such requests. We can assist with this.


Implications for Taxpayers


The good news for taxpayers is that keeping assets in Hong Kong will generally keep them out of a foreign tax authority’s reach.


In fact, Hong Kong persons enjoy further statutory protection from enforcement of foreign tax debts in Hong Kong. Section 3(2)(b) of the Foreign Judgments (Reciprocal Enforcement) Ordinance expressly excludes the reciprocal enforcement of foreign judgments for “a sum payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty”.


None of Hong Kong’s comprehensive income tax treaties provide for reciprocal enforcement of foreign tax debts imposed in treaty partner jurisdictions. Interestingly, the most recent OECD model tax treaty does contain such a provision, but so far Hong Kong has not included such terms in its tax treaties.




For more information, please contact:


Andrew Lockhart, Baker & McKenzie

[email protected]


Michael Olesnicky, Baker & McKenzie

[email protected]


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