Consensus On Tax Reform Welcomed

The Government today welcomed the consensus largely reached by the international community on the key principles of the international tax reform framework.

To address the base erosion and profit shifting (BEPS) risks arising from economy digitalisation, the Organisation for Economic Co-operation & Development announced on July 1 the framework for international tax reform (BEPS 2.0) to ensure a fairer distribution of taxing rights in respect of profits of large multinational enterprises (MNEs) and to set a global minimum tax rate.

A total of 130 jurisdictions globally, including Hong Kong, have indicated acceptance of the BEPS 2.0 package.

Financial Secretary Paul Chan noted that Hong Kong, as an international financial and commercial centre, has all along been supporting international efforts to enhance tax transparency and combat tax evasion and adopted corresponding measures.

He also stressed that small and medium-sized enterprises in Hong Kong would not be affected by the package.

For the large MNEs to be covered by the package, the Government will endeavour to maintain Hong Kong's simple, transparent and low tax regime and minimise their compliance burden.

The BEPS 2.0 package consists of two parts. The first one targets large MNE groups, including digital enterprises, with global turnover above 20 billion euros and profitability above 10%, and distributes the taxing rights in respect of a certain portion of their profits to the market jurisdictions.

The second part is the global minimum tax, which targets large MNE groups with global turnover above 750 million euros.

If the jurisdictional effective tax rate of an MNE group is below the global minimum tax rate, its parent or subsidiary companies will be required to pay top-up tax in the jurisdictions they are located in respect of the shortfall.

The organisation aims to finalise the package's technical details by October and implement it in 2023.

The Government said it set up an advisory panel in June last year to review the possible impact of the package on the competitiveness of Hong Kong's business environment and make recommendations on the response measures.

The Financial Secretary indicated in the 2021-22 Budget that Hong Kong would actively implement the BEPS 2.0 package according to international consensus while striving to maintain the key advantages of Hong Kong's tax regime in terms of simplicity, certainty and fairness, minimise the compliance burden on the affected enterprises, and continue to improve Hong Kong's business environment and competitiveness.

The advisory panel will submit a report to the Government as soon as possible after the organisation finalises the package's technical details.

The Government will carefully study the recommendations in the report and consult stakeholders on the specific response measures, with a view to rolling out relevant legislative exercise.