VIEWS ON GLOBAL TAX SOUGHT

21-12-2023

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The Government today launched a consultation exercise to gather views on the implementation of the global minimum tax under the international tax reform proposals drawn up by the Organisation for Economic Co-operation & Development.

Pillar Two of the reform proposals, commonly known as BEPS 2.0, was promulgated by the organisation in October 2021 to address base erosion and profit shifting risks arising from the digitalisation of the economy. Hong Kong joined more than 130 jurisdictions that year in committing to implement BEPS 2.0.

The package comprises global anti-base erosion (GloBE) rules for ensuring large multinational enterprise (MNE) groups with consolidated annual revenue of at least 750 million euros pay a global minimum tax of at least 15% on income derived by their constituent entities in every jurisdiction where they operate, thereby putting a floor on competition over corporate income tax.

Hong Kong will need to amend the Inland Revenue Ordinance to implement the necessary corresponding measures and the consultation exercise has been launched to take forward the legislative exercise.

A consultation paper has been published to explain the concepts of the GloBE rules, which will be strictly followed by Hong Kong and other jurisdictions, and the Hong Kong minimum top-up tax (HKMTT), and seek views on specific issues.

These issues include the Government's proposed approach with respect to certain areas relating to the implementation of the GloBE rules, the design and implementation of the HKMTT and the tax compliance and administration framework. 

As announced in the 2023-24 Budget, Hong Kong will apply the 15% global minimum effective tax rate on in-scope MNE groups from 2025 onwards. Only in-scope large MNE groups will be subject to the global minimum tax, while the vast majority of corporate taxpayers, including local small and medium enterprises, will not be affected. 

Under the global minimum tax, if the effective tax rate of an in-scope MNE group in Hong Kong is lower than 15%, other relevant jurisdictions have the right to collect top-up tax in respect of the low-taxed Hong Kong MNE entities concerned.

To preserve Hong Kong's taxing rights with respect to such entities instead of ceding them to other jurisdictions, the city will apply the HKMTT to in-scope MNE groups starting from 2025 so that the effective tax rate of these entities will be brought up to 15%.

By introducing the HKMTT, in-scope MNE groups will be spared the need to pay top-up tax in every jurisdiction where they operate, a move that helps reduce their compliance burden.

Secretary for Financial Services & the Treasury Christopher Hui said that Hong Kong, being an international financial centre and a responsible member of the international community, has all along supported global efforts to enhance tax transparency and combat tax evasion.

Additionally, the Government proposed business-friendly features in the overall framework of the global minimum tax and the HKMTT. These include aligning the design of the HKMTT, including the scope and tax rate, with that of the global minimum tax to ensure simplicity of the regime; and allowing in-scope MNE groups to decide on how the HKMTT payable is allocated among its Hong Kong entities to provide for flexibility.

The business-friendly features also comprise safe harbours in the framework to relieve compliance burden; and requiring in-scope MNE groups to only furnish a single top-up tax return for the purpose of both the global minimum tax and the HKMTT.

Views can be sent by email or by post to the Financial Services & the Treasury Bureau on 24/F, Central Government Offices, 2 Tim Mei Avenue, Tamar, by March 20, 2024. Subject to the consultation outcome, the Government aims to introduce the legislative amendments into the Legislative Council in the second half of the year. 




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