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Hong Kong Consults on Implementation of BEPS Measures

On 26 October 2016, the Hong Kong Inland Revenue Department announced the launch of a public consultation on the implementation of measures developed as part of the OECD BEPS Project. In particular, Hong Kong's priority is to put in place the necessary legislative framework for:

  • Spontaneous exchange of information on tax rulings (Action 5);
  • Specific transfer pricing rules that cover the latest guidance from the OECD (Actions 8 to 10), including the introduction of:
    • A fundamental transfer pricing rule based on the arm's length principle that empowers the Commissioner of Inland Revenue to make transfer pricing adjustments;
    • Specific penalties for making tax returns with incorrect information on transfer pricing; and
    • A statutory APA regime;
  • Transfer pricing documentation requirements (Action 13), which include the following:
    • Master and Local file requirements, with an exemption for enterprises meeting any two of the following conditions: (i) total annual revenue not more than HKD 100 million; (ii) total assets not more than HKD 100 million; and (iii) no more than 100 employees;
    • Country-by-Country reporting requirements for MNE groups with annual consolidated group revenue equal to or exceeding EUR 750 million (or HKD equivalent as of January 2015), with the report due within 12 months following the last day of the fiscal year;
    • Secondary filing requirements, where a constituent entity will be required to file a CbC report if the ultimate parent is resident in a jurisdiction that does not require the filing of CbC report or does not exchange such reports with Hong Kong, with an exemption if Hong Kong can receive the report from another jurisdiction or another Hong Kong entity that is authorized to file the report on behalf of the group; and
    • A transitional filing option, where an ultimate parent entity of an MNE group that is resident in Hong Kong will be allowed to voluntarily file its CbC reports for fiscal periods beginning from 1 January 2016 up to the date before the proposed legislation comes into operation; and
  • Cross-border dispute resolution (Action 14), which includes putting in place a full-fledged statutory mechanism to ensure timely, effective and efficient resolution of cross-border treaty-related disputes.

In addition, Hong Kong is planning to sign the Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting (MLI - Action 15).

Hong Kong has no immediate plans to implement measures from the other BEPS Actions, but will keep in view the pace of international developments and draw up a response plan as appropriate.

Click the following links for the consultation announcement and the consultation paper. The consultation runs through 31 December 2016, and the relevant amendment bill(s) are to be introduced into the Legislative Council in mid-2017.

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