Speech

LC: Bank of China (Hong Kong) Limited (Merger) Bill

Thursday, July 12, 2001

Following is the speech by the Acting Secretary for Financial Services, Ms K C AU, in resuming the second reading debate of the Bank of China (Hong Kong) Limited (Merger) Bill in the Legislative Council today (July 12):

Madam President,

Merger

The Administration welcomes the Member's Bill introduced by the Hon David Li, and the Bank of East Asia, Limited Bill to be introduced by the Hon Ng Leung Sing later today. It is the Administration's policy to support the continued consolidation of the banking sector in Hong Kong, which would improve its competitiveness, enhance the systemic stability of the banking system and ensure an appropriate degree of protection for depositors' interest. The Administration is of the view that the proposed mergers under the two Bills are in line with the aforesaid policy and conducive to maintaining Hong Kong's status as an international financial centre.

Taxation

In the course of considering the Bills, Members asked about the Administration's policy on the setting-off and carrying forward of losses of the merging entities for taxation purposes. This was mentioned just now by the Hon Albert Ho and the Hon Eric Li. As we have earlier pointed out to the Legislative Council, when deciding whether or not the surviving entity upon merger may carry forward the assessed losses of the merging entities, our main consideration is the status of the surviving entity under the operation of law.

Section 19C(4) of the Inland Revenue Ordinance (IRO) is a specific provision on the set-off of loss between corporations. It provides that the loss of one corporation cannot be set off against the profits of another corporation with a view to reducing assessable profits. As both Bills deem the surviving entity as one and the same as the merging entities, the Administration would enforce the provisions in the enacted Ordinances, including the one allowing the surviving entity, for tax assessment purposes, to carry forward the losses of the merging entities, in accordance with section 19C(4) of the IRO.

The same would apply to other merger entities, if the related merger bills carry similar provisions deeming the surviving entity as one and the same as the merging entities, and if they are enacted. The same would also apply if the merger of entities is conducted outside Hong Kong in a jurisdiction where the law deems the surviving entity as one and the same as the merging entities. This is because applying the principle under private international law, the Administration must accept the surviving entity as one and the same as the merging entities. And in accordance with section 19C(4) of the IRO, the surviving entity would be allowed to carry forward the losses of the merging entities for tax assessment purposes.

I wish to point out that this is in line with the established taxation policy. We had previously allowed the carrying forward of losses from the merging entities to the surviving entity for tax assessment purpose, arising from mergers effected by legislation containing provisions which deem the surviving entity as one and the same as the merging entities. In future, for any other mergers effected through legislation carrying the same effect under the operation of law, we will also adopt the same approach in handling carrying forward of losses for tax purposes.

Other comments of Members

I would like to thank the Hon Cyd Ho, the Hon Yeung Sum and other Members for expressing their concerns over the protection of privacy. As committed at the meeting of the LegCo Panel on Financial Affairs on June 19, we will study and consider whether the Personal Data (Privacy) Ordinance should be amended so as to include an exemption clause, which will deal with the privacy issues relating to the use of customer information brought about by the transfer of personal data to the merged entities upon merger of businesses.

Both merger Bills were introduced by Members. The Administration has no objection to the provisions related to the protection of personal data therein. This is not to give privileges to individual institutions but to take into account the following considerations: (1) mergers are normal commercial activities; (2) it is impracticable to require the banks concerned to obtain the "prescribed consent" of all their clients required by the Personal Data (Privacy) Ordinance in order to make use of their data and to continue providing banking services to them after merger; (3) the Privacy Commissioner for Personal Data has no objection to the relevant provisions.

Regarding comments by the Hon Selina Chow, the Hon Albert Ho, and other Members on the process of examining the Bills, I think Members understand that, in connection with the Bills, different Government departments had to study them thoroughly in respect of a number of policy areas. They include banking supervision, taxation and other related policies. At the same time, we had to ensure that the Bills are in line with the Basic Law and general law drafting principles. Furthermore, we had to discuss the Bills with the Banks. This is a duty that the Administration must duly discharge.

The Monetary Authority received in February this year the first draft of the Bill relating to the Bank of China, and immediately started discussion with the Bank to clarify certain contents of the first draft and the Bank's reorganization arrangements. By early-April, the Bank concerned submitted the confirmed draft Bill to the Administration. A number of Government departments expeditiously examined the draft Bill through flexible deployment of resources with a view to getting the job done as soon as possible.

As a result of these preparatory efforts, we were able to give prompt assistance to the Legislative Council when it was examining the Bills. For instance, the Legislative Council asked for the Administration's comments on the draft Bill relating to the Bank of China in mid-May. We gave our reply to the Legislative Council within four days. Through the above explanation, I hope Members will appreciate that the Administration has each and every intention to complete the tasks without delay. All of us should, of course, learn from experience and see what improvements could be made in similar situations in the future.

Amendment to be moved by Members at the Committee Stage

The Administration is aware that the Hon David Li and Hon Ng Leung Sing will move amendments to the respective Bills at the Committee Stage. Having examined the amendments, we are of the view that they will improve the implementation of the relevant provisions in the Bills and therefore have no objection to them.

Thank you, Madam President.