Result(s):

Total record found: 162 article(s)
Rethink Transfer Pricing under BEPS 2.0: Business Ethics of MNEs through the Lens of Adam Smith
  • Volume 24, Number 2
  • PRC & International Technical Column(s)
Description

Given the upcoming Base Erosion and Profit Shifting (“BEPS”) 2.0 rules, the recent transfer pricing (“TP”) landscape for multinational enterprises (“MNEs”) has reshaped international tax systems. Today’s globalised and digitalised market has further muddled the geographical borders. In addressing such a diverse business environment, Adam Smith’s business ethics appeal to MNEs to embed themselves into each community’s societal and cultural norms. These ethical requirements transform MNEs’ business practices as their foreign subsidiaries become socially responsible in their respective local communities. In view of the new BEPS rules, MNEs need to re-evaluate their TP policies as their subsidiaries create additional social value locally.

Keywords: transfer pricing, business ethics, BEPS 2.0, Adam Smith, social responsibility, cross-border transaction

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Pillar Two of BEPS 2.0 – The Proposed Rules and Issues for Consideration by Multinational Groups
  • Volume 24, Number 2
  • PRC & International Technical Column(s)
Description

This article provides an update on BEPS 2.0 developments, focusing on Pillar Two, including a summary of the proposed rules and a discussion of the various issues that organisations may wish to consider. The article will not go into the background on BEPS 2.0, which has been well covered in Martin Richter and Zakariya Modan’s article in the previous issue of this journal.

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Will Multinational Companies Be Able to Guaranty a Profit to their Limited Risk Subsidiaries In 2020?
  • Volume 24, Number 2
  • PRC & International Technical Column(s)
Description

Many multinational enterprises (“MNEs”) are structured with an entrepreneur and one or a few limited risk affiliates. The latter may be manufacturers, distributors, or service providers. These MNEs generally use the transactional net margin method (“TNMM”) in transfer pricing to set the remuneration of their affiliates. In transfer pricing, the TNMM 1) compares the net profit margin of a taxpayer arising from a non-arm’s length transaction with the net profit margins realised by arm’s length parties from similar transactions and 2) examines the net profit margin relative to an appropriate base, such as costs, sales, or assets.

In many developing countries in Asia, entities will only carry out single simple functions. For example, many manufacturers in China and Vietnam are either toll manufacturers or contract manufacturers. These manufacturers will only carry out the manufacturing functions under contracts for the principal, generally the entrepreneur in the supply chain. Other single function entities include pure distribution entities and entities which provide contract R&D services.

It is the view of the tax authorities in these developing countries that the single simple functions are limited risk functions and may not be compensated with a high profit margin. By the same token, these functions should not bear any losses. For example, in China, pursuant to Article 28 of Public Notice Number 6 (2017) issued by the State Taxation Administration, enterprises in China which are carrying out a single contract manufacturing function, single distributing function, or single contract R&D function for an overseas related party should maintain a reasonable profitability level. In the event these enterprises incur losses, even if they have not met the required threshold for preparation of a Local File in accordance with Public Notice Number 42 (2016), they would be required to prepare and submit a Local File to the tax authority. In general, explanations of the losses incurred by these enterprises, such as a wrong strategic decision of the overseas principal leading to the insufficient utilisation of production capacity, the slow movement of inventory, or the failure of R&D efforts, would not be accepted by the tax authority. Transfer pricing adjustments could be imposed.

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增值稅專用發票電子化對企業運營的影響探討
  • Volume 24, Number 2
  • PRC & International Technical Column(s)
Description

傳統的紙質增值稅專用發票(以下簡稱“專票”),對企業的管理一直存在較大的挑戰。自從國務院總理李克強在2019年11月27日的國務院常務會議上宣佈,力爭在2020年底前實現專票電子化,企業家和財務人員一直密切留意其進展情況。2020年8月31日,隨著國家稅務總局宣佈在寧波市開展增值稅電子專票試點,顯示專票電子化工作應在穩步推進之中,預計能夠實現2020年底在全國範圍內以試點的形式的推廣適用。

中國從1994年開始實施增值稅暫行條例,其核心是採用增值稅抵扣制度,專票作為最重要的抵扣憑證,在普遍的企業財務管理制度中,專票的重要性等同于現金。考慮到專票的重要性,為了預防、打擊涉稅犯罪行為,國家稅務總局自1994年開始研製防偽稅控系統,並在2000年基本實現了專票管理的電子化。
但是,在企業端,長期以來紙質專票仍然是財務管理的核心憑證。隨著社會經濟的發展,企業的規模越大、層級越多、業態越多,稅務合規管理的難度越大。雖然與專票相關的法規制度也在不斷完善,但受限於紙質專票的物理特質,企業管理成本仍然較高。

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Charities and Taxation – Evolving Practices of the Hong Kong Inland Revenue Department and Strategies for Charities
  • Volume 24, Number 2
  • HK Technical Column(s)
Description

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

Many charities in Hong Kong could very easily fall into the illusion that they are automatically exempt from tax for all sorts of income they derive once they are recognised by the IRD as “a charitable institution or trust of a public character”.

However, the revised version of the Tax Guide for Charitable Institutions and Trusts issued by the IRD in April 20201 has made it clear that this is not the case for charities carrying on a trade, profession, or business.

Charitable organisations should be aware that their tax exemption status does not preclude the IRD from reviewing them. In particular, profits from specific income-generating activities of a tax-exempt charity may be taxed despite the charity’s overall tax exemption status.

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The Taxing and Spending Powers of The Hong Kong Government
  • Volume 24, Number 2
  • HK Technical Column(s)
Description

The literature on the Hong Kong Basic Law is considerable and a substantial part of it addresses the constraints on the Government’s taxing and spending powers. This article aims to add to it by making two main points. First, whilst the provisions in the Basic Law dealing with the SAR Government’s budgetary processes are based on the Westminster model, they are also, in important respects, unique. Secondly, the meaning and justiciability of the provisions dealing with the Government’s taxing and spending powers (in particular, the rules enshrining the low tax policy and the Government’s obligation to balance its budgets) is unclear and is likely to be put to the test at some point.

Keywords: Hong Kong, China, tax, taxing and spending power, constitution, Basic Law, fiscal constitutionalism, low tax policy, handover, Westminster model, fiscal firewall, balanced budget

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A Review of Recent Board of Review Cases (Dec 2020)
  • Volume 24, Number 2
  • HK Technical Column(s)
Description

This article reviews the cases reported in the second and third supplements of Volume 34 of the Board of Review Decisions (“Decisions”), which were published in June and September 2020, respectively. There are nine salaries tax cases, four profits tax cases, one property tax case, and two penalty tax cases reported (one penalty case, D10/18, is classified as a profits tax case in the Decisions). Of the four profits tax cases, two concern deductibility of expenses; one considers 50/50 offshore claim, deduction of depreciation allowances, and deduction under section 16G; and one case is related to the sale of property. It is worthwhile to note that in many cases the Board imposed a costs order on the taxpayers.

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A Review of Recent Board of Review Cases (July 2020)
  • Volume 24, Number 1
  • HK Technical Column(s)
Description

This article reviews the cases reported in Volume 34 and the first supplement of Volume 34 of Board of Review Cases, which were published in December 2019 and March 2020, respectively. There are eight profits tax cases, one salaries tax case, and five penalty tax cases reported. Regarding the eight profits tax cases, three concern property disposal, two concern source of profits, two concern deductibility of expenses, and one concerns appeal out of time. The Board ordered costs in all but one of the penalty cases because of the incompetency of the professional advisors involved. In
two of the penalty cases, the Board expressed that if it were not for the need for confidentiality, the cases would have been referred to the relevant professional bodies for disciplinary investigation due to the incompetency of the representatives or the professional misconduct of the taxpayer.

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Mainland China Issued Individual Income Tax Related Policies to Improve Talent Mobility in the Greater Bay Area
  • Volume 24, Number 1
  • PRC & International Technical Column(s)
Description

One unique feature of the Guangdong-Hong Kong-Macao Greater Bay Area (“GBA”) is that it consists of three different tax systems. The judicial difference in tax systems for individuals between the Mainland, Hong Kong, and Macao may have hindered the cross-border free flow of labour and services. Since the issuance of the Outline Development Plan for the GBA, relevant implementation policies have been gradually issued by the Mainland’s central, provincial, and municipal governments to facilitate integration in the GBA. This article 1) discusses the tax challenges faced by non-China-domiciled individuals (including Hong Kong, Macao, and Taiwan residents) who are frequent business travellers and who commute across the borders in the GBA and 2) highlights two aspects of the new tax policies introduced by the Mainland in 2019 and the first half year of 2020 that could benefit these individuals: i) the new counting method for determining the number of days that non-China-domiciled individuals reside in the Mainland that reduces the likelihood of them being treated as PRC residents and taxed on their worldwide income and ii) the new tax policies granting individual income tax rebates for qualified overseas talent working in the nine cities in the Pearl River Delta.

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Exploring Internal Enablers of Workforce Agility in Tax Consulting Services: Big-Four Practitioners’ Perspective
  • Volume 24, Number 1
  • PRC & International Technical Column(s)
Description

Tax consulting service have been changing rapidly due to advances in technology, digital technology, connectivity, analytics, and information technology. Tax services can be categorised as technologyintensive services provided to highly dynamic clients. To adapt in such a changing environment and to meet taxpayers’ (clients’) increased expectations, consulting firms need to provide high-quality deliverables with the help of a highly agile workforce. Many researchers have identified enablers of workforce agility in different segments, but none have looked into the tax consulting domain. This paper aims to explore the major internal enablers that contribute to workforce agility in tax consulting services. The study is
based on a self-administered questionnaire survey of 435 tax professionals presently employed by Big-Four subsidiaries in India. The SEM results indicate that all of the identified enablers significantly and positively contribute to workforce agility in tax units. Organisational learning turns out to be the most crucial variable contributing to an agile workforce. Data analytics and automation, workforce upskilling, and collaboration are also significantly associated with workforce agility and help to promote agility among tax professionals. The results suggest that workforce agility in tax consulting services requires an organisational learning culture that supports new tax data analytics infrastructure and tax automation initiatives, the development of upskilling programmes, and a collaborative workplace for idea sharing and socialised learning. All of these enablers support professionals to act in all decision-making situations to accomplish organisational goals faster.

Keywords: Workforce agility; Big Four; Tax Consulting; Tax

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