Jurisdictions around the world have been wrestling with the OECD's Base Erosion and Profit Shifting project for the last few years, and now it's Hong Kong's turn: the Legislative Council officially passed its BEPS and transfer pricing bill last July, and the first deadlines are about to close.
A milestone in Hong Kong tax laws, the Inland Revenue (Amendment) (No 6) Ordinance 2018 introduces a formal transfer pricing regime. It embraces the OECD's BEPS initiative, implementing minimum standards set by its BEPS Action Plan into Hong Kong law.
BEPS is intended to promote greater transparency for tax administrations internationally by providing relevant and reliable information about the cross-border operations of entities within a group in order to conduct high-level transfer pricing risk assessments. Yet, despite so much information about BEPS now available, there is still confusion around who it applies to and what's required - and with Hong Kong's reporting deadlines imminent, there is no time to get up to scratch.
Our Hong Kong BEPS experts present the following short overview of requirements, and are on hand to guide local entities through the first reporting phase and beyond.
You can also replay our webinar on-demand: what don't you know about the new BEPS rules?
What are the Hong Kong BEPS reporting deadlines?
There are three major reporting deadlines that Hong Kong entities should be aware of.
- Country by Country (CbC) Notification: 31 March 2019
Under BEPS and transfer pricing laws, the Country by Country (CbC) notification must be filed within three months from the last day of the reporting year in Hong Kong. The information generally required in this notification includes the name of the reporting entity, its address, its tax identification number and the fiscal year covered.
The reporting deadline is applicable to Hong Kong companies with an ultimate parent entity (Hong Kong or non-Hong Kong) of a multinational enterprise group (MNE) with annual consolidated group revenue equal to or exceeding €750 million for an accounting period.
- Country by Country (CbC) Reporting: 31 December 2019
Country by Country Reporting is the next layer and part of Action 13 in the OECD's BEPS Action Plan. These reports will be automatically exchanged between the jurisdictions in which the MNE group operates, provided that a legal instrument allowing for automatic exchange of information is in place with that jurisdiction. It contains details regarding the international related party dealings, revenues, profits and taxes paid by the company for each jurisdiction in which it operates.
Applicable to companies with an ultimate parent entity of a multinational enterprise with annual consolidated group revenue equal to or exceeding €750 million for accounting periods beginning on or after 1 January 2018.
- Master File/ Local File: 30 September 2020
The master file gives a global overview on the business, including its supply chain, allocation of income, transfer pricing policies and financing activities, as well as financial and tax positions of the multinational entity group. The local file contains business information for each country in which the business operates, and looks at the local entity's intercompany transactions in a similar way to the transfer pricing documentation already prepared in local jurisdictions of an MNE group. The master file requires a deeper level of reporting than the country-by-country data and will be reported directly to countries in which a multinational does business.
This deadline is applicable to Hong Kong constituent entities of a group for each accounting period beginning on or after 1 April 2018.
3 questions to ask to determine reporting status in Hong Kong
It can be confusing for companies to determine their BEPS reporting obligations. Some local entities may be obligated to file a CbC Notification, even though the local entities themselves do not meet the CbC thresholds. It's also worth remembering that BEPS is an ongoing annual exercise and BEPS status can change from year to year, so entities need to be aware of their obligations.
Ask yourself these three questions to help determine if you have BEPS reporting obligations in Hong Kong:
- Do you operate as a multinational enterprise (MNE)?
- Do constituent entities operate in two or more jurisdictions?
- Does your MNE or Hong Kong individual entities fall under the following thresholds:
i. Group consolidated revenue over
approximately HK$6.8 billion?
ii. Individual entities with revenue over approximately HK$400 million?
iii. Individual entities with financial assets over approximately HK$300 million?
iv. Individual entities with average number of employees exceeding 100 people?
If you have answered "Yes" to two or more of the above questions, you likely have BEPS reporting obligations and should pay attention to the deadlines.
If you're still unsure, you can request a complimentary preliminary BEPS assessment from TMF Hong Kong's Regulatory Compliance team.
Talk to us
TMF Hong Kong provides a full suite of regulatory compliance solutions for APAC-based clients including BEPS, FATCA and CRS reporting.
Get in touch with our Hong Kong experts to discuss your BEPS reporting requirements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.