Result(s):

Total record found: 179 article(s)
South Korea — An Important Trading Partner of China and Hong Kong
  • Volume 26, Number 1
  • Belt & Road Column(s)
Description

Background
The relationship between China and South Korea dates back centuries. There were trade and cultural exchanges between the two countries through the Silk Road. In recent years, China and South Korea have endeavoured to boost their strategic and cooperative partnership in various sectors. South Korea is among China’s top trading partners. Both countries are members of the Regional Comprehensive Economic Partnership, a free-trade agreement between 16 countries to strengthen economic links and to enhance trade and investment related activities, which entered into force in January 2022 and took effect in South Korea in February 2022.
From a Hong Kong perspective, South Korea was ranked Hong Kong’s 6th largest trading partner in 2020. Hong Kong is an important entrepôt for merchandise trade between South Korea and mainland China. Re-export trade between the two economies through Hong Kong amounted to HK$251.5 billion in 2020.
South Korea has emerged as a soft power in Asia. It is Asia’s fourth-largest economy, famous for its exports of computer chips, smartphones, cars, and ships. According to the Hong Kong Trade Development Council, South Korea ranked third in terms of GDP among the Belt and Road countries and ninth in terms of GDP per capita in 2018. Despite the COVID-19 pandemic, South Korea achieved a 4 per cent increase in GDP in 2021, and the Organisation for Economic Co-operation and Development (“OECD”) forecasted GDP growth of around 3 per cent in 2022 and 2.7 per cent in 2023.
The country’s fiscal policy has been pivotal in shoring up growth through the pandemic, helping the economy to expand 4 per cent in 2021. The South Korean government has continued to intensify its efforts, and in December 2021, it introduced a KRW607.7 trillion budget for 2022, with a focus on strengthening the pandemic support for small businesses and boosting consumption. Two sizeable supplementary budgets were subsequently announced in January and February 2022 to increase support for small business owners and vulnerable groups as well as to enhance disease control. The government has also allocated a lot of resources to support research and development (“R&D”). In 2019, South Korea was placed among the OECD countries that provided the largest level of total government support to business R&D as a percentage of GDP, at a rate equivalent to 0.29 per cent of GDP.
South Korea is stepping up its efforts in soliciting foreign direct investment (“FDI”). South Korea’s capital city, Seoul, rolled out the “Asian Financial Hub Seoul” plan in November 2021. The basic plan of “Asian Financial Hub, Seoul” consists of 15 key missions in four areas, namely designing an ecosystem where the financial industry can grow, improving the city’s digital financial competitiveness, creating a business environment, and promoting Seoul’s status as a financial hub. The vision is to bring Seoul into the global top five financial hubs. On 7 February 2022, the city launched Invest Seoul, a foreign investment promotion agency to attract foreign investment and overseas companies. Invest Seoul’s aim is to promote the investment environment of Seoul to attract leading global companies and provide a one-stop service for foreign investment. It aims to attract USD30 billion of FDI by 2030.

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Pillar Two – Challenges in the Coordination of Domestic Minimum Taxing Rights
  • Volume 26, Number 1
  • PRC & International Technical Column(s)
Description

Under the introduction of a global minimum tax proposed by the Organisation for Economic Co-operation and Development (“OECD”), jurisdictions all over the world have been prompted to consider whether they should implement response measures in the form of domestic minimum taxes. Domestic minimum taxes should ensure that any top-up taxes that would otherwise be due under the global minimum tax are paid locally rather than to the tax jurisdiction where the multinational enterprise (“MNE”) group is headquartered.
The global minimum tax rules (“GloBE Rules”) contain a definition of domestic minimum tax, and the commentary to the GloBE Rules (“Commentary”) provides a degree of technical guidance. However, jurisdictions will be required to make difficult policy decisions, including the approach to implementing a domestic minimum tax in accordance with the definition provided by the GloBE Rules.
A critical question jurisdictions face is whether to treat certain foreign taxes, such as controlled foreign corporation (“CFC”) taxes, as covered taxes (effectively creditable taxes) when determining the amount of top-up tax that should be paid under a domestic minimum tax. An ordinary application of the GloBE Rules suggests that they should. However, should these rules be flexed in the context of a domestic minimum tax implementation? Also, is it fair from a policy perspective for a jurisdiction implementing a domestic minimum tax to reduce the tax it collects because of tax collected under a CFC regime by another jurisdiction? This article considers the innate nature of a domestic minimum tax and its interaction with the global minimum tax.

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Recent Developments in Transfer Pricing in China
  • Volume 26, Number 1
  • PRC & International Technical Column(s)
Description

China has seen the continued evolution of its transfer pricing enforcement towards a data-based administrative approach and away from aggressive audits.
In respect of the international scene, China has committed to the Organisation for Economic Co-operation and Development’s (“OECD”) Base Erosion and Profits Shifting (“BEPS”) Action 14 minimum standards (“BEPS 1.0 Project”) and is also one of the countries endorsing the Inclusive Framework of the BEPS 2.0 Project to be rolled out in 2022.
This article will focus on the latest developments in China’s transfer pricing enforcement during 2021. China has continued to follow the approach developed since 2018. This approach will be discussed from the following three broad perspectives:

1. Transfer pricing compliance
2. Focus on “non-trade” transactions
3. Resolution of international disputes through prioritising the Mutual Agreement Procedure (“MAP”) and facilitating transfer pricing certainty by promoting advance pricing agreements (“APAs”)

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The New Law Amendments Concerning the Special Tax Treatments of Corporate Amalgamations
  • Volume 26, Number 1
  • HK Technical Column(s)
Description

Ever since the introduction of simplified procedures in the revised Companies Ordinance (“CO”) in 2014 which aimed to reduce the business costs of restructuring, there has been controversy in the area of tax treatment for court-free corporate amalgamations. There was no codified practice in place in the Inland Revenue Ordinance (“IRO”) to align with the revised CO. However, potential tax exposure is one of the important factors for taxpayers to consider when deciding whether to proceed with an amalgamation, and the impact of tax exposure may eventually lead taxpayers to opt for alternatives. Hence, legislation in this regard is welcome for sake of certainty and clarity in regard to the tax treatment for court-free corporate amalgamations.
On 11 June 2021, the Inland Revenue (Amendment) (Miscellaneous Provisions) Bill 2021 (“New Bill”) was enacted to address the tax implications of court-free amalgamations under Division 3 of Part 13 of the CO. In this article, we explore the features of the New Bill and analyse the potential tax issues and impacts.

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A Review of Recent Board of Review Cases (July 2022)
  • Volume 26, Number 1
  • HK Technical Column(s)
Description

This article reviews the cases reported in Volume 36 and the third supplement of Volume 35 of the Board of Review Decisions (‘Decisions’), which were published in December and August 2021, respectively. There are nine salaries tax cases, six profits tax cases, and one penalty tax case reported. Of the six profits tax cases, one concerns the deductibility of expenses; two are related to the taxability of profits on disposal of property; and three cases consider the source of profits (in which two also consider whether the taxpayers carry on a business in Hong Kong).

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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。

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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.

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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.

 

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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.

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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.

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