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.
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