Hong Kong: Outcomes from Pillar Two consultation
Key points contained in the government’s responses
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November 4, 2024
The Financial Services and the Treasury Bureau and the Inland Revenue Department (IRD) issued a legislative council briefing paper on October 30, 2024, summarizing stakeholder feedback and the government’s responses following a consultation on the implementation of the global anti-base erosion (GloBE) rules and the Hong Kong minimum top-up tax (HKMTT) that was held between December 2023 and March 2024 (read TaxNewsFlash).
This report highlights key points contained in the government’s responses as set out in the legislative council briefing paper.
- Implementation timeline
- Legislative amendments to the Inland Revenue Ordinance (IRO) plan to be introduced by January 2025.
- The income inclusion rule (IIR) and HKMTT will be implemented from 2025.
- The undertaxed profits rule (UTPR) implementation is deferred to a later date.
- Legislative approach
- Top-up tax would be treated as a profits tax with distinct characteristics. The legislation on the GloBE Rules and HKMTT would be incorporated into the IRO under a new part separate from existing profits tax rules.
- Future OECD guidance will be incorporated through subsidiary legislation.
- Definition of “Hong Kong resident entity”
- A general definition will be introduced, effective retrospectively from January 1, 2024.
- UTPR safe harbour
- A transitional UTPR safe harbour will be included in the Pillar Two upcoming legislation.
- Design of the HKMTT
- Investment entities and insurance investment entities would be excluded to maintain tax neutrality.
- Tax compliance and administration:
- Annual designation of UTPR/HKMTT top-up tax paying entities
- Extended payment top-up tax due dates and objection periods
- A six-year limitation period for raising additional assessments
- Introduction of a main purpose test as a general anti-avoidance rule.
- Penalty provisions for GloBE rules and HKMTT will align with existing IRO approaches.
For more information, contact the Global Leader of KPMG Global Transfer Pricing Services:
Burcin Nee | bnee@kpmg.com