On July 31, the Hong Kong’s Inland Revenue Department (IRD) has released a consultation report that follows the work of the public on the BEPS plan in 2016, which is to be implemented in Hong Kong. Comments from 26 parties can be found in the report and future policy trends are indicated.
Hong Kong's simple and low tax regimes are not to be changed significantly, and the proposal is to be adjusted to a certain extent to address stakeholders' concerns. "We welcome the general support from the respondents for the proposed implementation strategy, which focuses on the four minimum standards set by the OECD (i.e. countering harmful tax practices, preventing treaty abuse, imposing a country-by-country reporting requirement and improving the cross-border dispute resolution mechanism),” a Government spokesman informed.
The report suggested introducing the fundamental international transfer pricing standards into Hong Kong’s domestic legislation. However, the government is not going to treat internal transactions and cross-border transactions differently and thin capitalization will be set aside. The proposition to exempt transactions between Hong Kong associated parties from the arm’s length standard is rejected in the report. Legal framework regarding country-by-country report will be provided and corresponding transitional arrangements can be found on the website of State Administration of Taxation, PRC. The Multinational Instrument mechanism is going to be applied in Hong Kong as well, within which the Principal Purpose Test is to be implemented.
The Government is pressing ahead with the preparatory work for the legislative exercise, and an amendment bill is supposed to be submitted to the Legislative Council by the end of 2017.
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