The Inland Revenue (Amendment) (No.6) Ordinance 2018 (the “Amendment Ordinance”) passed into law in July 2018, introduces statutory transfer pricing regime and implements various minimum standards under the Organisation for Economic Co-operation and Development (“OECD”)’s Base Erosion and Profit Shifting (“BEPS”) Action Plans. The Amendment Ordinance adopts the three-tier documentation structure, comprising a Master File, Local File and Country-by-Country Reporting (“CbCR”) recommended in the OECD BEPS Action Plan 13.
On 10 October 2018, the Chief Executive of Hong Kong, Carrie Lam, presented her second policy address to the Legislative Council. In her address, Lam has laid out various measures covering a wide range of issues from the housing, medical care and welfare. She has also proposed a number of tax-related measures and provided updates on the tax measures proposed in the 2018-2019 budget.
The legislation to (1) introduce the statutory transfer pricing regime, and (2) implement the various minimum standards under the OECD’s Base Erosion and Profit Shifting (“BEPS”) Action Plans, Inland Revenue (Amendment) (No.6) Ordinance 2018 ( the “Bill”) was passed by the Legislative Council on 4 July 2018. Please refer to our February and March 2018 Hong Kong Tax News on the background leading to the then draft legislation (the “Draft Bill”).
To encourage enterprises to invest in R&D in Hong Kong and to promote local R&D activities, the Hong Kong government proposed in the 2017 Policy Address to introduce an enhanced tax deduction for R&D expenditure.
On 19 March 2018, Hong Kong concluded a comprehensive double taxation agreement (“CDTA”) with India. This brings the total number of CDTA entered by Hong Kong with other jurisdictions to 39.
Inland Revenue (Amendment) (No.3) Ordinance 2018 for introducing a two-tiered profits tax rates regime was enacted on 29 March 2018. The two-tiered profits tax rates regime will be effective from the year of assessment 2018/2019 (i.e. on or after 1 April 2018).
Further to its joining of the BEPS Inclusive Framework of the Organization for Economic Co-operation and Development (“OECD”) in June 2016, Hong Kong is obliged to introduce legislation to implement the various minimum standards under the OECD’s Base Erosion and Profit Shifting (“BEPS”) Action Plans1. On 29 December 2017, Inland Revenue (Amendment) (No.6) Bill 2017 (“Amendment Bill”) 2 was gazetted. The Amendment Bill covers (1) introduction of the statutory transfer pricing regime, (2) implementation of the various minimum standards under the OECD’s BEPS Action Plans and (3) revise the fees for applying for the advanced ruling.
Hong Kong has always been relying on a few provisions in its tax laws and a Departmental Interpretation Practice Note (“DIPN”) to combat tax avoidance through transfer pricing. Subsequent to joining the Organisation for Economic Co-operation and Development (“OECD”)’s inclusive framework for Base Erosion and Profit Shifting (“BEPS”) in June 2016 to counter BEPS, and publishing the outcome of the consultation exercise in July 2017, a draft bill mainly to implement key actions arising from the BEPS agenda was gazetted (Inland Revenue (Amendment) (No. 6) Bill 2017) (“Amendment Bill”) on 29 December 2017. It is expected to be passed before the summer of 2018.
After the Chief Executive presented in her maiden Policy Address in October 2017 that a two-tier profits tax rates system will be introduced in Hong Kong, the Inland Revenue (Amendment) (No. 7) Bill 2017 (the “Bill”) was gazetted on 29 December 2017 in order to seek to implement the above system. Once enacted, the two-tier profits tax rates system will be effective from the year of assessment 2018/2019.
In order to promote Hong Kong aircraft leasing to capture the opportunity in China, the government introduced new legislation to attract aircraft leasing and management businesses to Hong Kong.