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Hong Kong Publishes Amendments to Draft BEPS Bill

The Hong Kong government has published the first batch of proposed committee stage amendments to the Inland Revenue (Amendment) (No. 6) Bill 2017, which includes the measures in relation to Hong Kong's commitment to implement the four minimum standards of the BEPS package (previous coverage). The main amendments include:

  • Clarification that unilateral double taxation relief (i.e. exclusion of income taxed in foreign territory under section 8(1A)(c) and deduction of tax paid in foreign territory under section 16(1)(c)) is not applicable where the income is derived from services rendered, or the foreign tax is paid, in a territory with which Hong Kong has entered into Double Taxation Agreements that provide for relief by way of tax credit;
  • Clarification that the rules relating to the computation of income or loss for provision between associated persons on an arm's length basis will apply in relation to a year of assessment beginning on or after 1 April 2018, while the rules relating to the attribution of income or loss to permanent establishments of non-Hong Kong resident persons as if the permanent establishment were a distinct and separate enterprise will apply in relation to a year of assessment beginning on or after 1 April 2019;
  • Clarification that a taxpayer would be accepted as having substantiated his reported/claimed amount if such amount is within the arm’s length range;
  • Clarification that with respect to the local filing exception where a surrogate parent entity has been designated to file a CbC report in another jurisdiction and a later deadline for filing CbC reports is prescribed in the laws or regulations of the jurisdiction of tax residence of the surrogate parent entity, that later deadline will be taken as the filing deadline in relation to the CbC return concerned;
  • An extension of the preparation period for the Master and Local file from 6 months to 9 months after the end of each accounting period of the entity concerned;
  • A change with respect to the reporting threshold for local filing of CbC reports to provide that the threshold is the threshold specified by the ultimate parent's jurisdiction or, if there is no CbC reporting requirement in the ultimate parent's jurisdiction, the threshold is the amount equal to the EUR 750 million equivalent in the currency of the ultimate parent's jurisdiction as at January 2015;
  • An adjustment of the CbC notification requirement to include that a notification will need to state only whether a CbC report is filed in the ultimate parent entity’s jurisdiction or the surrogate parent entity’s jurisdiction, but not the date of filing as originally required; and
  • Clarification that the rules for the taxation of intellectual property income will apply in relation to a year of assessment beginning on or after 1 April 2019 – the rules include that a person carrying out the functions of development, enhancement, maintenance, protection or exploitation (DEMPE) for intellectual property in Hong Kong will be taxed on the basis of that person’s contribution in carrying out such functions.

A second batch of proposed amendments is expected to be provided by the end of May concerning exemptions for certain domestic transactions from the transfer pricing rules and from the Master and Local file requirements. With respect to the Master and Local file, this is to include an increase in the size-based exemption thresholds for total annual revenue and total assets from the original HKD 200 million for both to thresholds of HKD 400 million and HKD 300 million for revenue and assets, respectively.

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