Abstract

Following the approval of the Tax Compliance Bill by Chile’s Congress on 25 September 2024, Law No. 21,713—which enacted rules aimed at ensuring compliance with tax obligations, within the Pact for Economic Growth, Social Progress and Fiscal Responsibility—was published in Chile’s Official Gazette on 24 October 2024. With this, the discussion that began on 29 January 2024, when the bill was presented in the Honourable Chamber of Deputies, came to an end.

As highlighted in the presidential message accompanying the bill, this new tax compliance law was intended to increase tax collection by 1.5 per cent of Chile’s gross domestic product (GDP), approximately US$4,500 million, in full operation and to allow the Executive to add around US$1,200 million to the 2025 Budget, which would allow contributions to the financing of the needs and spending priorities defined within the Pact for Economic Growth, Social Progress and Fiscal Responsibility, which are basically the financing of pensions and public safety.

Law No. 21,713 introduced comprehensive amendments to several legal frameworks, including the Tax Code (“TC”), the Income Tax Law (“ITL”), and the Value Added Tax Law, as well as to the organic laws of the Chilean Internal Revenue Service (“IRS”) and the National Customs Service.

Some of the contents on which the law focuses are related to 1) the modernisation of the tax administration and the tax and customs courts, 2) tax crimes, 3) aggressive tax planning, 4) regulation of tax obligations, and 5) institutional strengthening and probity.

The amendments came into force at different times; thus, in this article, in addition to discussing the most relevant amendments, we will also indicate at the foot of each section the date on which each of these amendments came into force.

Additionally, in March 2024, the Ministry of Finance presented preliminary ideas that would be included in the proposed general income tax reform, which was set to be submitted once the legislative process for the Tax Compliance Bill was completed. There are also updates on this matter as of this date, which are addressed at the end of this article.

Abstract:

This article explores the impact of US estate tax on non-US persons, highlighting how US estate and gift taxes apply primarily to US-situs assets owned by foreign individuals. While US persons benefit from a large estate tax exemption, non-US persons are limited to a much smaller exemption, making them more vulnerable to US estate tax on their US assets. Key strategies for non-US persons include residency planning, making tax-efficient gifts, and shifting asset situs to reduce exposure. The article also discusses the importance of understanding asset situs and the challenges in determining domicile. Effective planning and compliance with US estate tax laws can minimise liabilities and protect beneficiaries from financial and legal risks.

1.  An Overview of Pillar Two Under BEPS 2.0

The Pillar Two framework of the OECD’s Base Erosion and Profit Shifting (“BEPS”) 2.0 initiative includes four key components, namely the Subject-to-Tax Rule (“STTR”), the domestic minimum top-up tax (“DMTT”), the Income Inclusion Rule (“IIR”), and the Undertaxed Profits Rule (“UTPR”). The IIR and UTPR are collectively known as the Global Anti-Base Erosion (“GloBE”) model rules. Additional taxes may be imposed on the low-taxed profits derived by large multinational enterprise (“MNE”) groups under one or more of these four rules of Pillar Two, which apply in the following order:

Introduction and Background

Hong Kong is a major step closer to adopting Pillar 2 of the Base Erosion and Profiting Shifting (“BEPS”) 2.0 through the gazetting of the Inland Revenue (Amendment) (Minimum Tax for Multinational Enterprise Groups) Bill 2024 (the Amendment Bill) on 27 December 2024.[1] This was followed by the subsequent enactment of the Amendment Bill in an amended form as the Inland Revenue (Amendment) (Minimum Tax for Multinational Enterprise Groups) Ordinance 2025 (the Amendment Ordinance) on 28 May 2025.[2] The Amendment Ordinance, as gazetted on 6 June 2025, applies to a fiscal year beginning on or after 1 January 2025. The definition of “tax resident of Hong Kong” introduced into section 2 of the Inland Revenue Ordinance (the Ordinance) by the Amendment Ordinance, however, applied retrospectively from 1 January 2024.

The Amendment Ordinance reflects the outcome of a significant decision made by Hong Kong in July 2021 when it joined the then 130-plus jurisdictions in accepting the international tax reform framework of the two-pillar solution under BEPS 2.0.[3] This approach was advanced by the OECD to tackle base erosion and profit shifting risks arising from the digitalisation of the economy.[4] The next significant step was for the Financial Secretary’s announcement in the 2024/25 Budget that Hong Kong would implement the global minimum tax in accordance with the BEPS 2.0 framework, and a related Hong Kong minimum top-up tax (“HKMTT”) would be implemented from 1 January 2025 onwards. The Financial Secretary stated in his 2024/25 Budget Speech:[5]

“238. We will continue to take forward the implementation of the global minimum tax proposal drawn up by the Organisation for Economic Co-operation and Development to address base erosion and profit shifting. We aim to apply the global minimum tax rate of 15 per cent on large multinational enterprise groups with an annual consolidated group revenue of at least EUR 750 million and impose the Hong Kong minimum top-up tax starting from 2025. We are now conducting consultation on the implementation of the above proposals and expect to submit a legislative proposal to LegCo in the second half of this year. It is estimated that these proposals will bring in tax revenue of about $15 billion for the Government annually starting from 2027-28. Hong Kong maintains an edge over other tax jurisdictions in terms of tax competitiveness after the implementation of the proposals.”

Prior to the tabling of the Amendment Bill, there was a period of public consultation (December 2023 to March 2024) and consultation with the Legislative Council Panel on Financial Affairs in February 2024. Specifically, the Administration advised that it received submissions from 26 respondents, including professional bodies and tax professionals. In addition, 19 engagement sessions were held with relevant stakeholders (including those from the accounting sector, in-scope multinational enterprise (“MNE”) groups and tax professionals) during the period 11 January 2024 to 4 November 2024.[6] The overall response was generally supportive. The resulting draft legislation largely recognised respondents’ views on the implementation timeline of the Under Taxed Profit Rule (“UTPR”), design of HKMTT, as well as issues on tax administration and compliance. The Bills Committee considered the submissions, as well as recommendations from the Hong Kong Government, making numerous changes to the Amendment Bill, which are included in the Amendment Ordinance.

This article now turns to discussing why Hong Kong has embraced Pillar 2, the legislative proposal and subsequent enactment in more detail, and a comment on the implications for in-scope MNE groups. It concludes with some general observations.

[1]          For further details see Inland Revenue’s website at: https://www.ird.gov.hk/eng/tax/bus_beps.htm#a03d.

[2]          For further details see https://www.legco.gov.hk/en/legco-business/committees/bills-committee.html?2025&bc101#about.

[3]          See further, Global Forum on Transparency and Exchange of Information for Tax Purposes; details available at: https://www.oecd.org/en/publications/global-forum-on-transparency-and-exchange-of-information-for-tax-purposes_2219469x.html.

[4]          For further information on the OECD’s Pillar 2 rules, see: https://www.oecd.org/en/topics/sub-issues/global-minimum-tax/global-anti-base-erosion-model-rules-pillar-two.html.

[5]          Speech by the Financial Secretary, the Hon Paul MP Chan moving the Second Reading of the Appropriation Bill 2024 Wednesday, 28 February 2024 (Budget Speech 2024/25), at para 238 (emphasis added).

[6]          See Legislative Council, Paper for the House Committee Meeting on 10 January 2025 Legal Service Division Report on Inland Revenue (Amendment) (Minimum Tax for Multinational Enterprise Groups) Bill 2024, LC Paper No. LS2/2025.

Volume 38 Third Supplement, Volume 39, and Volume 39 First Supplement were published in March 2025, June 2025, and September 2025, respectively. Ten cases were reported in these three publications: three salaries tax cases, one property tax case, and six profits tax cases. The three salaries tax cases respectively concerned 1) whether the tax assessed had already been paid and the deductibility of home loan interest, 2) whether the taxpayer was liable to salaries tax, and 3) whether termination payments were subject to salaries tax. All three cases were dismissed by the Board of Review, with costs being imposed on the taxpayer in one of the cases. The property tax case concerned whether rental income paid to a joint owner to the order of the taxpayer was liable to property tax; this case was dismissed by the Board. The six profits tax cases covered six issues: 1) the absence of the appellant from a Board hearing, 2) the source of profits, 3) whether the appeal in question was out of time, 4) the meaning of “accrued” interest, 5) whether the gain from sale of property is capital in nature, and 6) late notification of chargeability and additional tax quantum. The Board dismissed all six cases.

Background

Before 2009, corporate restructurings involving the foreign parent of a multinational and its Chinese subsidiaries were often treated as taxable transactions. Capital gains would be triggered from a China taxation perspective even though no economic gains were realised.

In 2009, the Ministry of Finance and the State Taxation Administration (“STA”) jointly issued Notice on Certain Issues of Enterprise Income Tax Treatment of Enterprise Reorganizations (Cai Shui (2009) No 59; “Circular 59”). Circular 59 allows corporation groups to elect for tax deferral treatment for various types of reorganisation, including debt restructurings, acquisitions of equity, acquisitions of assets, mergers, and demergers.

This article summarises the following:

1. The key features of the patent box tax incentive
2. The major clarifications made by the government during the legislative process
3. How the inclusion of research and development (“R&D”) expenditures for non-eligible intellectual properties (“IPs”) under the transitional rule could drag down the R&D fraction or nexus ratio for the eligible IPs
4. The merits of also adopting the product-based approach to ascertaining the portion of embedded IP income eligible for the concessionary tax rate
5. The uncertainties surrounding the conditions under which a licensee of an eligible IP can benefit from the tax incentive
6. The definition of an R&D activity under the new law as compared with that apparently adopted under the nexus approach

Introduction

Intellectual property (“IP”) has become a cornerstone of modern economies, driving innovation, competitiveness, and economic growth. Recognising the importance of IP and its highly mobile nature, many countries and jurisdictions have implemented tax incentive regimes to attract and retain businesses that generate valuable IP. Governments have designed various strategies to promote research and development (“R&D”) activities, including grants, loans, R&D investments, additional R&D expense deductions, R&D tax credits, accelerated depreciation, and patent box regimes. Patent box regimes, in particular, are designed to encourage companies to conduct high-value R&D and to commercialise their patents and other IP within a jurisdiction’s borders by providing material tax preference treatments. Aside from stimulating the R&D activities of indigenous companies, multinational corporations (MNCs) are often the targets of patent box regimes for relocating patents, IP, and R&D activities to the jurisdiction.

A recent addition to the world of patent box regimes is the one introduced by the Hong Kong Special Administrative Region (hereinafter, “Hong Kong”). As part of an effort to develop Hong Kong into “an international innovation and technology centre” and “a regional intellectual property trading centre”[1], and mandated by the 14^th Five-Year Plan of China, Hong Kong’s patent box regime complements its existing enhanced tax deduction regime for qualifying R&D activities, which was enacted in 2018.

Whilst the typical patent box regime gives away tax concessions in exchange for high value economic activities, it may motivate MNCs to take advantage by attributing more business profits of the group to the IP that falls under the regime in order to enjoy the lower tax rate and thereby effectively reduce the group-wide tax burden. This, at times, puts patent box regimes, along with other tax incentive schemes, under the spotlight – they are being alleged to be breeding grounds for (international) tax avoidance. With global efforts to combat base erosion and profit shifts in full swing, it is important for policymakers to ensure that patent box regimes are sustainable and viewed as non-harmful by the rest of the world. They need to be regimes that attract and stimulate genuine R&D and related exploitation activities to enhance their own legitimacy.

This article explores the genesis of the patent box, provides a global overview of prevailing regimes, and examines Hong Kong’s newly introduced patent box regime. It also discusses the efficacy of patent box regimes in achieving the policy goals of the countries that implement them and how Hong Kong can learn from and benefit from such regimes in achieving its policy goals