简介
Editorial
Joint Editors
- Jody Wong
- The Hong Kong Polytechnic University
- Percy Wong
- The Hong Kong Polytechnic University
- Philip Hung
- The Taxation Institute of Hong Kong
- Kelvin Mak
- The Taxation Institute of Hong Kong
- Webster Ng
- The Taxation Institute of Hong Kong
Editorial Consultants
- Nancy Su
- The Hong Kong Polytechnic University
- Nigel Eastaway
- MHA MacIntyre Hudson
- Michael Olesnicky
- Baker & Mckenzie, HK
- Charles Swenson
- University of Southern California, USA
- Daniel Thornton
- Queen's University, Canada
- Jefferson VanderWolk
- Squire Patton Boggs, USA
- Marcellus Wong
- AMTD Group
Editorial Board Members
- Spencer Chong
- PricewaterhouseCoopers, HK
- Wilson Chow
- The University of Hong Kong
- Daniel Ho
- Hong Kong Baptist University
- Patrick Ho
- FTMS Training System Limited
- Simon James
- University of Exeter
- Jeyapalan Kasipillai
- Monash University Malaysia
- Patrick Kwong
- Ernst & Young Tax Services Limited
- David Lai
- Hong Kong University of Science and Technology
- Stephen Lee
- Sinotax Services Limited
- Thomas Lee
- Thomas Lee & Partners
- Tak Yan Leung
- Hong Kong Metropolitan University
- Poh Eng Hin
- Nanyang Technology University
- Anthony Tam
- Mazars
- Kalloe Vinod
- KPMG, Netherlands
- Fergus Wong
- PricewaterhouseCoopers, HK
- Chris Xing
- KPMG, China
- Eugene Yeung
- KPMG, China
Letters From The Editors
In this letter from the editors, two recent issues will be discussed: first, the inclusion of Hong Kong in the European Union’s watch list; second, the e-filing proposals of the Inland Revenue Department (IRD).
On 5 October 2021, the European Union (EU) announced the inclusion of Hong Kong in its watch list on tax co-operation as it considered that the non-taxation of certain foreign-sourced passive income in Hong Kong might lead to situations of “double non-taxation”. The EU is concerned that corporations with no substantial economic activity in Hong Kong are not subject to tax in respect of certain offshore passive income (such as interest and royalties), hence resulting in “double non-taxation”. Hong Kong’s inclusion in the list is undoubtedly of great concern to the HKSAR Government, which responded that “as an international financial centre, Hong Kong has all along been actively participating in and supportive of international tax co-operation.” To address the EU’s concern, the HKSAR Government has made a commitment to the EU to amend the Inland Revenue Ordinance (IRO) by the end of 2022 and to implement relevant measures in 2023 (see https://www.ird.gov.hk/eng/ppr/archives/21100501.htm).
Notwithstanding its commitment to amend the IRO, the HKSAR Government stressed that “Hong Kong will continue to adopt the territorial source principle of taxation… [and] endeavour to uphold our simple, certain and low-tax regime…”. Moreover, the HKSAR Government stated that “the proposed legislative amendments will merely target corporations, particularly those with no substantial economic activity in Hong Kong… Individual taxpayers will not be affected. As to financial institutions, their offshore interest income is already subject to profits tax under the Inland Revenue Ordinance at present, and hence the legislative amendments will not increase their tax burden” (see https://www.ird.gov.hk/eng/ppr/archives/21100501.htm).
On the other hand, the EU published the guidance on the foreign-sourced income exemption regime in October 2019 and commenced a corresponding assessment of the tax arrangements of a number of tax jurisdictions (including Hong Kong). The assessment aimed at addressing situations where offshore shell companies obtain tax benefits through “double non-taxation”. The HKSAR Government has been in contact with the EU on its assessment and has been actively engaging with the EU on the follow-up work.
The HKSAR Government tried to comfort the Hong Kong business community by expressing that “Hong Kong enterprises will not be subject to defensive tax measures imposed by the EU as a result of being included in the watchlist on tax co-operation. The HKSAR Government will request the EU to swiftly remove Hong Kong from the watchlist after amending the relevant tax arrangements.”
The EU will monitor the measures implemented by Hong Kong to comply with its commitments. If the issue is not resolved by 31 December 2022, Hong Kong will be put on the EU’s “blacklist”, where certain defensive measures may be applied by EU member states (e.g. non-deductibility of costs, controlled foreign company rules, withholding tax measures, etc).
Apart from amending its “territorial source regime”, Hong Kong has committed to implementing the BEPS 2.0 Pillar Two project (Pillar Two) by 1 January 2023. For taxpayers with consolidated revenues over EUR750 million, the impact of Pillar Two is likely to be far more significant than the impact of the territorial regime revisions as their effective tax rate will be required to be at least 15 per cent if Hong Kong introduces a domestic minimum tax rate.
As to the issue of e-filing, Hong Kong’s Legislative Council passed the Inland Revenue (Amendment) (Miscellaneous Provisions) Bill 2021 on 2 June 2021. Inter alia, the bill covers the filing of tax returns. The Secretary for Financial Services and the Treasury, Mr. Christopher Hui, said that the bill would “provide the legal basis to enable more businesses to voluntarily file tax returns, including financial statements, electronically, with the ultimate goal of implementing electronic filing of profits tax returns through the Business Tax Portal” (see https://www.ird.gov.hk/eng/ppr/archives/21060206.htm). In November 2021, the IRD issued a Consultation Paper on its e-filing proposals. Under the proposals, the IRD encourages businesses or interested parties (e.g. software suppliers) to upgrade or develop their own computer programs which are capable of converting their existing financial statements into iXBRL (i.e. Inline eXtensible Business Reporting Language) format, creating iXBRL tax computations, and generating the required iXBRL data files for e-filing purposes. The IRD proposes to upload a preliminary edition of the IRD Taxonomy Package and the specifications in iXBRL schemas onto its website in early 2022. To support taxpayers, the IRD will provide free iXBRL preparation tools to assist taxpayers in converting financial statements and tax computations in Word or Excel files to iXBRL data files. The IRD will also provide a one-on-one e-concierge consultation on the use of the preparation tools. The proposed implementation timelines of the e-filing project are as follows:
The IRD’s goal should be implementing e-filing for all profits tax payers in general. Hence, businesses should review their own existing resources and capability on e-filing and assess whether it is more beneficial for them to do the e-filing in-house or outsource it to a service provider. If they prefer to handle the e-filing themselves, they should assess what accounting system changes/upgrade will be required and how to leverage the IRD’s free conversion tools and one-on-one e-concierge consultation. Taxpayers and services providers are highly encouraged to participate in the trial/pilot run and provide feedback and suggestions. The IRD might consider extending its promotion of e-filing proposals to more profits tax payers given the profound impact of e-filing on IT resource requirements.
Let’s go back to the Journal. In this issue, there are three articles in the Hong Kong Tax Column: an article examining in outline and from a practitioner’s perspective the options available in amending the IRO in response to the EU’s inclusion of Hong Kong on its watch list; an article summarising the cases reported in first and second supplements of Volume 35 of the Board of Review Decisions; and an article discussing issues relating to charitable institutions, particularly what common activities of charities constitute a “business” and the tax implications of a charity’s non-Hong Kong activities. In the China Tax Column, there are two articles on the development of tax policies, respectively for the Greater Bay Area and the Hainan Free Trade Zone. The Philippines, an emerging trading partner of China and Hong Kong, is the reported country in the One Belt One Road Column.
Our heartfelt thanks go to the authors for their efforts and commitment in writing such insightful articles. Our great thanks also go to the reviewers for their valuable comments. Lastly, we wish to express our gratitude for the continuing support we receive from our readers, which is a key impetus for our ongoing efforts to develop and improve the Journal.
The Joint Editors
January 2022
On 5 October 2021, the European Union (EU) announced the inclusion of Hong Kong in its watch list on tax co-operation as it considered that the non-taxation of certain foreign-sourced passive income in Hong Kong might lead to situations of “double non-taxation”. The EU is concerned that corporations with no substantial economic activity in Hong Kong are not subject to tax in respect of certain offshore passive income (such as interest and royalties), hence resulting in “double non-taxation”. Hong Kong’s inclusion in the list is undoubtedly of great concern to the HKSAR Government, which responded that “as an international financial centre, Hong Kong has all along been actively participating in and supportive of international tax co-operation.” To address the EU’s concern, the HKSAR Government has made a commitment to the EU to amend the Inland Revenue Ordinance (IRO) by the end of 2022 and to implement relevant measures in 2023 (see https://www.ird.gov.hk/eng/ppr/archives/21100501.htm).
Notwithstanding its commitment to amend the IRO, the HKSAR Government stressed that “Hong Kong will continue to adopt the territorial source principle of taxation… [and] endeavour to uphold our simple, certain and low-tax regime…”. Moreover, the HKSAR Government stated that “the proposed legislative amendments will merely target corporations, particularly those with no substantial economic activity in Hong Kong… Individual taxpayers will not be affected. As to financial institutions, their offshore interest income is already subject to profits tax under the Inland Revenue Ordinance at present, and hence the legislative amendments will not increase their tax burden” (see https://www.ird.gov.hk/eng/ppr/archives/21100501.htm).
On the other hand, the EU published the guidance on the foreign-sourced income exemption regime in October 2019 and commenced a corresponding assessment of the tax arrangements of a number of tax jurisdictions (including Hong Kong). The assessment aimed at addressing situations where offshore shell companies obtain tax benefits through “double non-taxation”. The HKSAR Government has been in contact with the EU on its assessment and has been actively engaging with the EU on the follow-up work.
The HKSAR Government tried to comfort the Hong Kong business community by expressing that “Hong Kong enterprises will not be subject to defensive tax measures imposed by the EU as a result of being included in the watchlist on tax co-operation. The HKSAR Government will request the EU to swiftly remove Hong Kong from the watchlist after amending the relevant tax arrangements.”
The EU will monitor the measures implemented by Hong Kong to comply with its commitments. If the issue is not resolved by 31 December 2022, Hong Kong will be put on the EU’s “blacklist”, where certain defensive measures may be applied by EU member states (e.g. non-deductibility of costs, controlled foreign company rules, withholding tax measures, etc).
Apart from amending its “territorial source regime”, Hong Kong has committed to implementing the BEPS 2.0 Pillar Two project (Pillar Two) by 1 January 2023. For taxpayers with consolidated revenues over EUR750 million, the impact of Pillar Two is likely to be far more significant than the impact of the territorial regime revisions as their effective tax rate will be required to be at least 15 per cent if Hong Kong introduces a domestic minimum tax rate.
As to the issue of e-filing, Hong Kong’s Legislative Council passed the Inland Revenue (Amendment) (Miscellaneous Provisions) Bill 2021 on 2 June 2021. Inter alia, the bill covers the filing of tax returns. The Secretary for Financial Services and the Treasury, Mr. Christopher Hui, said that the bill would “provide the legal basis to enable more businesses to voluntarily file tax returns, including financial statements, electronically, with the ultimate goal of implementing electronic filing of profits tax returns through the Business Tax Portal” (see https://www.ird.gov.hk/eng/ppr/archives/21060206.htm). In November 2021, the IRD issued a Consultation Paper on its e-filing proposals. Under the proposals, the IRD encourages businesses or interested parties (e.g. software suppliers) to upgrade or develop their own computer programs which are capable of converting their existing financial statements into iXBRL (i.e. Inline eXtensible Business Reporting Language) format, creating iXBRL tax computations, and generating the required iXBRL data files for e-filing purposes. The IRD proposes to upload a preliminary edition of the IRD Taxonomy Package and the specifications in iXBRL schemas onto its website in early 2022. To support taxpayers, the IRD will provide free iXBRL preparation tools to assist taxpayers in converting financial statements and tax computations in Word or Excel files to iXBRL data files. The IRD will also provide a one-on-one e-concierge consultation on the use of the preparation tools. The proposed implementation timelines of the e-filing project are as follows:
- uploading of the IRD Taxonomy onto the IRD’s website in early 2022;
- rollout of the iXBRL Preparation Tools by the end of 2022 or early 2023;
- launch of trial/pilot run in the fourth quarter of 2022;
- voluntary and mandatory e-filing of profits tax returns by April 2023 and 2025 respectively for large multinational enterprises; and
- mandatory e-filing of profits tax returns in general by 2030 tentatively.
The IRD’s goal should be implementing e-filing for all profits tax payers in general. Hence, businesses should review their own existing resources and capability on e-filing and assess whether it is more beneficial for them to do the e-filing in-house or outsource it to a service provider. If they prefer to handle the e-filing themselves, they should assess what accounting system changes/upgrade will be required and how to leverage the IRD’s free conversion tools and one-on-one e-concierge consultation. Taxpayers and services providers are highly encouraged to participate in the trial/pilot run and provide feedback and suggestions. The IRD might consider extending its promotion of e-filing proposals to more profits tax payers given the profound impact of e-filing on IT resource requirements.
Let’s go back to the Journal. In this issue, there are three articles in the Hong Kong Tax Column: an article examining in outline and from a practitioner’s perspective the options available in amending the IRO in response to the EU’s inclusion of Hong Kong on its watch list; an article summarising the cases reported in first and second supplements of Volume 35 of the Board of Review Decisions; and an article discussing issues relating to charitable institutions, particularly what common activities of charities constitute a “business” and the tax implications of a charity’s non-Hong Kong activities. In the China Tax Column, there are two articles on the development of tax policies, respectively for the Greater Bay Area and the Hainan Free Trade Zone. The Philippines, an emerging trading partner of China and Hong Kong, is the reported country in the One Belt One Road Column.
Our heartfelt thanks go to the authors for their efforts and commitment in writing such insightful articles. Our great thanks also go to the reviewers for their valuable comments. Lastly, we wish to express our gratitude for the continuing support we receive from our readers, which is a key impetus for our ongoing efforts to develop and improve the Journal.
The Joint Editors
January 2022