Result(s):

Total record found: 174 article(s)
海南自貿港稅收政策解讀
  • Volume 25, Number 2
  • PRC & International Technical Column(s)
Description

2020年6月1日,《海南自由貿易港建設總體方案》(以下簡稱“《總體方案》”)出台,在社會各界引起強烈反響。隨後, 海南自由貿易港( 以下简称“ 海南自貿港” ) 各項具體稅收政策出台,本文將對各項具體稅務政策進行介紹及解讀。

Login to download / Register as subscriber
Philippines – Changing the Tax Landscape
  • Volume 25, Number 2
  • Belt & Road Column(s)
Description

The Philippines has witnessed changes in its tax rules. Republic Act No. 11534, otherwise known as the “Corporate Recovery and Tax Incentives for Enterprises Act” or “CREATE”, has, among other things, introduced changes in corporate income taxation and the tax incentive system. Another change is the new procedures requiring the filing of a tax treaty relief application (“TTRA”) or a request for confirmation for all types of income payments derived by non-resident taxpayers from Philippine sources. A further change is the requirement on selected taxpayers to file a disclosure form on related-party transactions; these selected taxpayers should prepare the relevant transfer pricing documentation if they meet the materiality thresholds. One development to be monitored is the setting up by the Bureau of Internal Revenue (“BIR”) of an e-receipt system. Upon the establishment of the e-receipt system, certain taxpayers will be required to issue electronic sales or commercial invoices and to electronically report their sales.

Login to download / Register as subscriber
China’s Tax Policies in the Greater Bay Area: A New Landscape and New Prospect
  • Volume 25, Number 2
  • PRC & International Technical Column(s)
Description

Since the announcement of the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area (the GBA Plan) in February 2019, Guangdong, Hong Kong, and Macao authorities have been actively implementing the GBA Plan and driving the collaborative development of the three economies. Both Hong Kong and international businesses can capitalise on these measures and tap into opportunities in other parts of the GBA and mainland China as a whole. The GBA includes nine mainland cities (Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing) and the Special Administrative Regions (SARs) of Hong Kong and Macao.

 

From a tax perspective, attractive tax incentive policies are available for qualified enterprises and talents to encourage the GBA’s development. Further, local tax authorities in the GBA are actively exploring new service offerings to taxpayers in order to improve the business environment. All of these measures are crucial to the continued success of businesses in the GBA.

 

Login to download / Register as subscriber
Charities and Taxation – Updates
  • Volume 25, Number 2
  • HK Technical Column(s)
Description

Introduction

 

A charitable institution or trust of a public character may obtain tax exemption status from the Inland Revenue Department (IRD) under section 88 of the Hong Kong Inland Revenue Ordinance (“IRO”).

 

In our article published in the November 2020 issue of the Asia Pacific Journal of Taxation, we pointed out that a charitable organisation’s tax exemption status does not automatically relieve it from tax on any profit it derives from carrying on any trade, profession, or business. The conditions as set out in the proviso to section 88 of the IRO must be satisfied for such profit to be tax exempted. This article analyses further the points to note when considering whether certain common activities of charities constitute a “business” and when considering the tax implications of a charity’s non-Hong Kong activities.

 

In addition to the proviso to section 88 of the IRO, charitable organisations should also be aware that the tax exemption status granted under that section does not extend to all obligations under the IRO. In particular, they should take note of their compliance and tax payment obligations in their capacity as payers of certain amounts under specific provisions in the IRO. Failure to fulfil these obligations may result in unexpected tax liabilities and/or penalty exposures for charitable organisations. We cover this in further detail later on in this article.

Login to download / Register as subscriber
Trajectories for the Development of the Inland Revenue Ordinance in Hong Kong
  • Volume 25, Number 2
  • HK Technical Column(s)
Description

Introduction

 

In perhaps one of the most important works of contemporary Italian fiction, The Leopard,[2] Giuseppe Tomasi di Lampedusa has one of his main characters, a scion of the decaying Sicilian aristocracy, quip that “if we want everything to stay as it is, everything has to change”. Those fateful words would in these days of base erosion and profit shifting (“BEPS”) appear to be likewise applicable to Hong Kong’s Inland Revenue Ordinance (“IRO”). We never tire of touting the merits of Hong Kong’s ‘low and simple’ tax regime,[3] though it is by any objective standard neither especially low nor especially simple. If current thinking within the Organisation for Economic Co-operation and Development (“OECD”) and, most pressingly as at the time of writing, the European Union (“EU”) has cast serious doubt on the viability of Hong Kong’s territorial tax code, now would be a good time for the Legislature to take the initiative and to commence a proactive dialogue with Hong Kong’s principal stakeholders and trading partners with a view to understanding how best to approach the challenge of bringing its tax code into the 21st century.

 

It would, all other things being equal, be preferable for that process to be initiated and overseen by the Financial Services and Treasury Bureau and the Legislative Council rather than imposed by way of diktat from the OECD. The gravamen of the OECD and the EU with the tax system in Hong Kong is the general sense that a strictly territorial tax code may, in the absence of adequate safeguards to, for example, prevent double non-taxation, constitute a harmful tax practice and that it amounts to a ‘beggar thy neighbour’ approach to setting tax policy: Hong Kong, this reasoning would have it, attracts capital, investment, and talent not because it is in and of itself a competitive jurisdiction but because it offers low rates of tax. That is, on any fair analysis, a dubious conclusion, but it does illustrate the magnitude of the task of advocating for Hong Kong’s financial and fiscal policies. It would now appear that with Hong Kong’s adherence to the BEPS initiative of the OECD, the Government and the Legislature have concluded that it is in Hong Kong’s best interests to make a show of good fiscal citizenship and so to ensure that its tax laws and practice are seen as compliant with the baseline international tax standards.

 

On 5 October 2021, the Council of the EU in effect ‘grey-listed’ Hong Kong, requiring this jurisdiction to take legislative measures to reform or abolish its ‘harmful’ foreign-source income exemption regime by 31 December 2022 or otherwise risk being placed on the ‘black list’,[4] and the Government of Hong Kong has committed itself to meeting the EU’s expectations.[5] Setting aside for a moment that, as a technical matter, the IRO technically exempts foreign-source income from taxation by exclusion rather than by express concession, this is perhaps the strongest direct signal Hong Kong has received that its territorial tax code as currently in force is no longer viable, especially as regards passive income.

 

This article aims to examine in outline and from a practitioner’s perspective the options available in terms of amending the IRO. In that regard, and as a prior matter, the reader should note that there has not been an Inland Revenue Ordinance Review Committee since 1976.[6] The last time, therefore, that a comprehensive examination of the prospects of reforming and modernising Hong Kong’s tax code took place was well over forty years ago.[7] That is unusual in the context of an advanced, globalised economy such as Hong Kong and indicates a degree of legislative complacency and policy inertia. Both policymakers and practitioners may take encouragement from the fact that the trajectory of the development of Hong Kong’s tax legislation is by no means unique. We have comparator jurisdictions, such as Singapore, to stand in as an immediate inspiration, and, in the longer term, we can look to the examples of the United Kingdom and its other former colonies, such as New Zealand and Australia, and how their respective tax codes developed from a base that was, especially in the first half of the 20th century, similar to the IRO. There is, therefore, something to be said for not ‘reinventing the wheel’, to (ab)use a corporate turn of phrase: The experiences of comparable common law jurisdictions should prove valuable in anticipating the statutory drafting, technical, and practical issues that would arise from the enactment and implementation of new tax legislation.

 

From a practitioner’s perspective, the abundance of decided authorities on matters that are currently not relevant to Hong Kong taxation, such as the nature of a dividend, the incidence of capital gains taxation, and controlled foreign company regimes, would be of invaluable assistance in steering the decision-making processes of the Inland Revenue Department (IRD), the Board of Review, and the higher courts of Hong Kong. To convene a Fourth Inland Revenue Review Committee would not be a leap into the unknown but rather more comparable to sailing out into well-charted waters.

Login to download / Register as subscriber
A Review of Recent Board of Review Cases (December 2021)
  • Volume 25, Number 2
  • HK Technical Column(s)
Description

This article reviews the cases reported in the first and second supplements of Volume 35 of the Board of Review Decisions (the “Decisions”), which were published in May and June 2021, respectively. There are seven salaries tax cases (one salaries tax case, D11/19, is classified as a profits tax case in the Decisions), seven profits tax cases, one administrative issue case, and one penalty tax case reported. Three of the salaries tax cases concern income received after termination of employment, which the taxpayers argued was not payment for services but was compensation or payment for something else. D11/19 is now under appeal at the Court of Appeal. Of the seven profits tax cases, two concern source of profits (one source case also considers deduction of specified capital expenditure), two consider deductibility of expenses under section 16, and three cases are related to the sale of property. It is worthwhile to note that in many cases the Board imposed a costs order on the taxpayers.

Login to download / Register as subscriber
2021 Luxembourg Corporate Taxation Overview
  • Volume 25, Number 1
  • Belt & Road Column(s)
Description

Although Luxembourg is one of the world’s smallest sovereign states, it has been successful in attracting worldwide-based investors, banks, multinational corporations, state-owned enterprises, sovereign wealth funds, and high net worth individuals seeking to establish or expand their business across borders.

 

The well-known Luxembourg “SOPARFI”, a vehicle used by many for bridging investors and investments, has been and still is an unquestionable success, with thousands of such companies being formed for investing in all types of assets.

 

Thanks to its stable financial ecosystem as well as the flexible and pioneer approach of European regulations, Luxembourg is also a recognised leader within the world’s financial industry. For example, with more than EUR5 trillion assets under management, Luxembourg is the second largest fund domicile in the world and the global leader as far as cross-border fund distribution is concerned. It also is a long-established fund domicile for investment flows into and out of China.

 

Luxembourg has earned its reputation as an ideal hub for Chinese outbound activities and has bridged the gaps between Europe and the East. In fact, the many advantages it offers have established Luxembourg as a de facto gateway for China to access the European Union (increasingly since the inception of the Belt and Road initiative). Luxembourg is also home to a growing number of funds managed by China-based investment managers as well as hosting the European headquarters of seven of the largest Chinese financial institutions.

 

Additionally, in past 10 years, Luxembourg has progressively gained recognition as a key hub for cross-border renminbi business in the Eurozone. It is the leading European centre for renminbi payments, deposits, and loans; renminbi investment funds; the listing of dim sum bonds; and access to data and information on the Chinese domestic green securities listed and traded on the Shanghai Stock Exchange or traded on the Chinese Interbank Bond Market.

 

In this paper, we try to provide an overview of Luxembourg’s taxation system and unveil some of the reasons why such a small country could end up being so successful among investors around the world. We focus on the essentials of taxation without further highlights on the fund industry, which could itself be the topic of a separate paper.

Login to download / Register as subscriber
Tax Residency and Permanent Establishment issues during the COVID-19 Disruption Period and in the New Reality
  • Volume 25, Number 1
  • PRC & International Technical Column(s)
Description

Tax residency and permanent establishment (“PE”) are two of the most important and fundamental concepts in international taxation. Many jurisdictions, including mainland China, adopt residence-based taxation, under which a tax resident enterprise is taxed on its worldwide income while a non-resident enterprise would be subject to income tax if it: 1) has a PE in that jurisdiction and has profits attributable to that PE; or 2) derives profits having a source from that jurisdiction even if it does not have a PE there.

 

The location of board members and senior executives is one of the key factors in determining the tax residency of an entity. Therefore, travel restrictions imposed by countries around the world as a result of the COVID-19 pandemic have caused unexpected tax residency issuesCOVID-19 disruption may also give rise to PE exposures. For instance, employees may travel to and be stranded in a jurisdiction other than their usual work location during the pandemic. Another example is that employees or agents may temporarily conclude contracts at their homes for and on behalf of their non-resident employers/principals because of the COVID-19 pandemic. In response, the Organisation for Economic Co-operation and Development (“OECD”) issued guidance on 3 April 2020 to provide its recommendations on these matters and other related cross-border issues in the tax treaty context. An updated guidance was issued by the OECD on 21 January 2021. The OECD guidance reflects the OECD’s views and the approach that would generally be taken by its member states, despite the fact that it is not legally binding.

 

Many jurisdictions have also issued similar guidance. For instance, in mainland China, the Chinese State Taxation Administration (“STA”) issued a Q&A notice entitled “疫情防控期间税收协定执行热点问题解答” (literally means “COVID-19 disruption period guidance on permanent establishment and tax residence”) on 14 August 2020 providing views on tax treaty enforcement during the COVID-19 disruption period, which act as supplementary provisions to Guoshuifa [2010] No. 75 (“Circular 75”) on tax treaty interpretations, to clarify how the tax residency and PE rules will be applied in mainland China during the COVID-19 disruption period.

 

This article aims to discuss: 1) how the guidance issued by the OECD and the STA may provide relief to situations such as those faced by Hong Kong tax resident enterprises with employees present in mainland China for an extended period of time because of COVID-19 travel restrictions; and 2) how the employment arrangement of their employees should be revisited to mitigate the PE risk in mainland China in view of the new reality (i.e. new working arrangements of employees) in the post-COVID-19 era.

Login to download / Register as subscriber
Indian Tax Implications of Holding a US Individual Retirement Account
  • Volume 25, Number 1
  • PRC & International Technical Column(s)
Description

Many taxpayers of Indian origin work in the United States and contribute to US individual retirement accounts (“IRAs”). Some of these taxpayers may eventually return to India either to retire or to pursue new work there. Many US citizens of non-Indian origin also work and live in India as expatriates. When they become tax residents of India, these taxpayers are subject to Indian income tax on their worldwide income, including income from their US IRAs. This article identifies and examines provisions of the Indian Income Tax Act 1961 and the double taxation avoidance treaty between the US and India that are relevant to IRAs held by tax residents of India and then applies these provisions to a concrete numerical illustration.

Keywords: Individual Retirement Account; Indian Income Tax; Cross-Border Taxation

Login to download / Register as subscriber
Hong Kong’s Enhanced Research and Development Tax Deduction Regime
  • Volume 25, Number 1
  • HK Technical Column(s)
Description

Before the enactment of the Inland Revenue (Amendment)(No.7) Ordinance 2018 in relation to the enhanced tax deduction for research and development (“R&D”) expenditure, section 16B of the Inland Revenue Ordinance (“IRO”) provided 100 per cent tax deduction for expenditure on R&D with respect to 1) payments to approved research institutes or 2) expenditure incurred in-house by the taxpayers themselves. Moreover, capital expenditure on machinery and equipment for the purposes of R&D also qualifies for 100 per cent deduction in the year it was incurred.

 

During his 2018/19 Budget Speech, Mr. Paul Chan, the Financial Secretary of Hong Kong, highlighted the importance of innovation and technology for the Hong Kong economy:

 

“To shine in the fierce innovation and technology race amidst keen competition, Hong Kong must optimise its resources by focusing on developing its areas of strength, namely biotechnology, artificial intelligence, smart city and financial technologies (Fintech), and forge ahead according to the eight major directions set out by the Chief Executive.”

 

In line with the Government’s policy in respect of innovation and technology, the Inland Revenue (Amendment)(No.7) Ordinance 2018 was enacted on 2 November 2018 to encourage more enterprises to conduct R&D activities in Hong Kong by providing more enhanced tax deduction for expenditure incurred by taxpayers on qualifying R&D activities. Under the amendment, taxpayers are able to enjoy a 300 per cent tax deduction for “Type B expenditure” on the first HK$2 million spent on a qualifying R&D activity and a 200 per cent tax deduction on expenditure after the first HK$2 million, with no cap on the deductible amount. “Type A expenditure” will continue to qualify for 100 per cent tax deduction. The new deduction applies retrospectively to expenditure incurred on or after 1 April 2018. The definitions of Type B and Type A expenditure are presented below.

 

Following the enactment of the new law, Departmental Interpretation and Practice Note (“DIPN”) No. 55 was issued by the Inland Revenue Department (IRD) in April 2019 to set out in detail its views and practices on the amended section 16B and Schedule 45 in the IRO.

Login to download / Register as subscriber