In July 2019, the Hong Kong Inland Revenue Department published its new Departmental Interpretation and Practice Notes (DIPN) including:
- DIPN 58: Transfer Pricing Documentation and Country-By-Country Reports (CbC Reports);
- DIPN 59: Transfer Pricing Between Associated Persons; and
- DIPN 60: Attribution of Profits to Permanent Establishments in Hong Kong.
As it follows from the provisions of DIPN 58, the taxpayers should take into account the key requirements in the context of CbC reporting:
1. A multinational enterprise group (MNE group) is a reportable group for an accounting period if it has a total consolidated group revenue of at least the specified threshold amount for the immediately preceding accounting period that is as follows (depending on the jurisdiction of tax residence of the ultimate parent entity (UPE)) (para. 76–77 ):
- if the UPE is resident for tax purposes in Hong Kong, the specified threshold amount is $6.8 billion;
- if the UPE is resident for tax purposes in a jurisdiction other than Hong Kong and that jurisdiction requires the filing of a CbC report in respect of an accounting period by an MNE group that has a total consolidated group revenue for the immediately preceding accounting period of at least an amount stipulated under the laws or regulations of that jurisdiction, the specified threshold amount is the amount so stipulated;
- if the UPE is resident for tax purposes in a jurisdiction other than Hong Kong which does not require the filing of a CbC report, the specified threshold amount is an amount in the currency of that jurisdiction equivalent to EUR 750 million as at January 2015.
2. In case of dual residence of the UPE of a MNE group, one of two options might be applied (para. 81):
- if Hong Kong and the jurisdiction of incorporation have a double taxation agreement (DTA), the dual residence issue should be dealt with pursuant to the tie-breaker rules under the DTA;
- otherwise, the UPE will have to comply with its CbC reporting obligation in both jurisdictions.
3. Local filing for a Hong Kong entity will not be required in the context of CbC reporting in the following situations (para. 86):
- the jurisdiction has neither participated in the Convention on Mutual Administrative Assistance in Tax Matters (1988) nor entered into a DTA/tax information exchange agreement (TIEA) with Hong Kong; or
- the DTA/ TIEA between the jurisdiction and Hong Kong does not allow automatic exchange of information.
4. The Commissioner may use the information in a CbC report in planning a tax audit or investigation, or as the basis for making further enquiries into the MNE group’s transfer pricing arrangements or other tax matters, in the course of an audit (para. 106).
5. The CbC reporting requirements apply in relation to an accounting period beginning on or after 1 January 2018 (para. 117).
6. The Hong Kong ultimate parent entity is allowed, as a transitional measure, to voluntarily file a CbC return for an early reporting period(accounting period beginning between 1 January 2016 and 31 December 2017) such that the CbC report included therein can be exchanged with the jurisdictions of tax residence of the group’s constituent entities (para. 118–119).
The Hong Kong Inland Revenue Department clarifies the application of the rules with examples that should help the taxpayers to better understand them e.g. by illustrating the filing and the notification requirements.
Source:
https://www.ird.gov.hk/eng/pdf/dipn58.pdf
