Country-by-Country reporting, Transfer pricing documentation implemented in Hong Kong

A. Country by country (CbC) reporting

In 2015, the Organisation for Economic Co-operation and Development (OECD) released a package of 15 action plans to tackle tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations (collectively called Base Erosion and Profit Shifting (BEPS)).

Among the 15 action plans, Action 13 specifically implements CbC reporting and Transfer Pricing (TP) documentation which require multinational enterprises to report information about tax residency, financial data and intra-group transactions of the multinational enterprise groups to the local tax authorities which then submit the same to the OECD.

As a participating jurisdiction of the OECD, the Hong Kong Inland Revenue Department (“IRD”) implemented the CbC reporting and TP documentation in July 2018.

We provide a summary about the CbC reporting as follows:-

1. When is the effective date of the CbC reporting?

The CbC reporting is effective from the accounting period beginning on or after 1 January 2018.

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2. Whether a group is obliged to do the Hong Kong CbC reporting?

A group satisfies below conditions is obliged to do the CbC reporting for the current accounting period:-

i. the group has constituent entities or operations in two or more jurisdictions;

AND

ii. the consolidated group revenue for the preceding accounting period is at least EUR750 million (or HK$6.8 billion).

3. If the group has not yet been set up in the “preceding accounting period”, is it obliged to do the CbC reporting for the current accounting period?

No, it is not obliged to do so.

However, if the group has been set up during the current accounting period and it satisfies the conditions in (2)(i) and (ii), it is obliged to do the CbC reporting for the subsequent accounting period.

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4. If it is confirmed that the group is obliged to do CbC reporting, which group entity has the reporting obligation?

The primary obligation of the CbC reporting is on the ultimate holding company in Hong Kong. However, unless the below conditions are satisfied –

(i) The ultimate holding company has already done a CbC reporting for the same fiscal accounting period in other jurisdictions;

And

(ii) there is currently international agreements between such jurisdictions with Hong Kong providing for automatic exchange of tax information (Note),

the group has to nominate a Hong Kong entity to take the secondary obligation to do the CbC reporting in Hong Kong. Where a group has a few Hong Kong entities, it is only required to nominate one of its Hong Kong entities to fulfil this obligation.

Note:

For the purpose of automatic exchange of tax information for CbC reporting, the relevant jurisdictions may either enter into –

(i) The Convention on Mutual Administrative Assistance in Tax Matters (for the list of participants, please refer to http://www.oecd.org/tax/exchange-of-tax-information/Status_of_convention.pdf);

OR

(ii) Bilateral arrangements for CbC reporting purpose on top of the double tax treaty agreements with Hong Kong (for the list of the jurisdictions signed, please refer to the part of “Automatic Exchange of Country by Country Reports” in the link: https://www.ird.gov.hk/eng/tax/dta_cbc.htm)

5. Deadline for CbC reporting notification

Upon confirming the CbC reporting obligation, notification to the IRD is required.

Please note that once it is confirmed that a group has the CbC reporting obligation, even if the group has already done a CbC reporting in other jurisdiction (which has entered into an agreement with Hong Kong to exchange tax information for the CbC reporting purpose), the Hong Kong entity of the group is still obliged to notify the IRD of its CbC reporting obligation.

The deadline of the notification is within 3 months after the end of the accounting period of the Hong Kong entity.

For example, if the end of the Hong Kong entity’s accounting period is 31 December 2018, the deadline of the notification is 31 March 2019.

The IRD relies on the self assessments of the groups to determine whether they satisfy the conditions in (2)(i) and (ii). If the groups determine they do not satisfy the aforesaid conditions, they are not required to file any notification to the IRD.

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6. Deadline of the CbC reporting

For the purpose of the CbC reporting, the IRD has designed a CbC Return.

The deadline of filing the CbC Return is within 12 months after the end of the accounting period.

For example, if the end of the accounting period of the Hong Kong entity is 31 December 2018, the deadline of filing the CbC Return is 31 December 2019.

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7. Any penalty against failure of complying with the above obligations?

Failure of complying with any of the above obligations (i.e. notification and CbC reporting) is subject to a fine of HK$50,000 plus a daily fine of HK$500 during which the offence continues.

In addition, the court will order the reporting entity to fulfil the obligation(s) that the reporting entity has failed to do. If the reporting entity fails to comply with the court order, it will be subject to prosecution.

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Information from official website:
https://www.ird.gov.hk/eng/tax/dta_cbc.htm

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B. Transfer pricing (TP) documentation

The IRD has also codified the transfer pricing principles into the Inland Revenue Ordinance (“IRO”) in July 2018 as required by Action 13 of the BEPS Package promulgated by the OECD.

The amended IRO requires multinational groups to apply transfer pricing principles to the transactions of sale/transfer/use of assets and provision of services with related parties (including head office with its overseas branches). Where the IRD thinks a transaction is conducted with tax advantage and is not on an arm’s length basis, it is empowered to adjust the profits/losses of an enterprise arising from related party transactions as if the transaction is made with unrelated parties.

The amended IRO requires Hong Kong entities to prepare (i) master files and (ii) local files as part of the transfer pricing documentation, subject to certain exemptions.

We provide a summary about the transfer pricing documentation as follows:-

1. When is the effective date of the TP documentation?
   The TP documentation is effective from the accounting period beginning on or after 1 April 2018.
2. Who is required to prepare the TP documentation?
   Any Hong Kong entities entered into transactions with foreign associated parties without the exemptions are required to prepare the TP documentation.

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3. Deadline of preparing TP documentation?
   The deadline is within 9 months from the end of the relevant accounting period.

4. How long should the TP documentation be kept?
   The TP documentation should be kept for at least 7 years.
5. Any penalty against failure of complying with the obligation?
   Failure of complying with the obligation is subject to a fine of HK$50,000.
   In addition, the court will order the entity to fulfil the obligation that the entity has failed to do. If the reporting entity fails to comply with the court order, it will be subject to prosecution.

C. Application of Certificate of Resident Status

The Comprehensive Double Taxation Agreement signed between Hong Kong and the Mainland China in prior years brings a series of tax benefits to Hong Kong tax residents (including corporations). The tax benefits include preferential tax rates on dividend income, interest income, royalty income. Details are as follows:

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Note:

1. The lower rate applies where the beneficial owner of the dividend is a company that directly owns at least 25% of the capital of the paying company.
2. The lower rate applies to royalties paid to an aircraft and ship leasing business.

We are pleased to let you know that we have successfully obtained the Certificate on behalf of a Hong Kong corporation. We only submitted the documents to the Inland Revenue Department (“IRD”) in one shot. Upon review of the documents, the IRD accepted the application and issued the Certificate to the Hong Kong corporation without any query.

We are pleased that our services do add value to our clients and saved 50% of the tax!

Nevertheless, the acceptance of application depends on the totality of facts of each case. In order to obtain the Certificate, taxpayers have to fulfil a number of conditions in addition to paying tax in Hong Kong. The conditions include substance in Hong Kong such as the mode of operations, maintenance of employees, office, fixed assets in Hong Kong, etc. Moreover, the taxpayers must be the beneficial owner of the concerned remittance.

We are more than happy to provide professional advice to our clients before the application.

Should you have any questions to the above, please feel free to contact Ms. Pisces Wong, the Senior Accounts and Tax manager of Portcullis Tax Services (Hong Kong) Limited:-

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Pisces Wong | Senior Accounts and Tax Manager
Portcullis Tax Services (HK) Limited
15/F, BOC Group Life Assurance Tower,
No. 136 Des Voeux Road Central, Central, Hong Kong
Tel: (852) 2525 9991 | DDI: (852) 3173 1046
Email: pisces.wong@portcullis.co

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國別報告、轉讓定價文書在香港推行

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甲. 國別報告

經濟合作與發展組織（經合組織）於2015年推出15個方案以遏止企業利用各個稅務管轄區在稅制上的差異進行跨境避稅(簡 稱「侵蝕稅基及轉移利潤」（BEPS）)。

BEPS的第13個方案推行國別報告及轉讓定價文書, 當中要求跨國企業向當地稅務局申報集團內個別企業的稅收居民身份、財務數據、關聯交易等資料, 各稅務局收集資料後將呈交上經合組織。

作為經合組織成員之一, 香港稅務局(“稅務局”)由2018會計年度開始要求符合條件的企業做國別報告及擬備轉讓定價文書。

在此簡述國別報告的申報責任：

1.國別報告的責任何時生效?
生效期為2018年1月1日起始的會計年度。

2.如何決定集團有責任做香港國別報告與否?
凡集團符合以下條件, 即有責任就本會計年度做國別報告：

i. 集團於多過2個地區/國家設有成員實體(即企業或常設機構);

及

ii.集團於上一個會計年度的綜合收入達歐元750,000,000 (或HK$6,800,000,000) 。

3.如有關集團在「上一個會計年度」還未成立, 那麼有責任為本會計年度做國別報告嗎?
不用!

然而, 若集團已於本會計年度成立並符合了(2)(i)和(ii)所列的條件, 便需要為下一個會計年度做國別報告。

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4.確認要做國別報告了, 但這是集團內哪家企業的責任?
首要申報責任為集團內最終控股公司。然而, 若最終控股公司設立在香港以外的地區或國家, 除非該最終控股公司 –|

(i) 已就相同會計年度於其他地區/國家做了國別報告;

及

(ii) 有關地區/國家已跟香港設立訊息亙換機制 (註),

否則集團內的香港企業需負起次要申報責任。若集團在香港成立了多家企業, 則只需提名一家企業履行此責任。

註：

有關地區/國家可透過簽訂以下協議設立有關訊息亙通機制：

(i) 稅收徵管互助公約

(有關參予成員之名單,請參考http://www.oecd.org/tax/exchange-of-tax-information/Status_of_convention.pdf);

或

(ii) 為國別報告而與已簽訂《全面性避免雙重課稅的協定》之地區/國家加簽的雙邊安排

(有關參予成員之名單,請詳見https://www.ird.gov.hk/eng/tax/dta_cbc.htm “Automatic Exchange of Country by Country Reports”的部份)

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5.國別報告責任的通知期限

一旦確定集團有責任做香港國別報告, 便需要通知稅務局。

請注意, 即使該集團已在其他地區/國家(即已跟香港設立訊息亙換機制的地區/國家)做國別報告, 集團內的香港企業仍須通知稅務局其香港國別報告的責任。
通知期限為香港企業的2018會計年度結束後之3個月內。

如企業的會計年度為2018年12月31日, 則通知期限為2019年3月31日。

稅務局就此採取自查方式, 即符合了(2)(i)及(ii)所列條件才需要做此通知, 否則便不用向稅務局做任何通知。

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6.國別報告申報期限

稅務局為有關國別報告製作了國別報稅表。

報稅表的申報期限為有關香港企業的2018會計年度結束後的12個月內。

如企業的年結為2018年12月31日, 則期限為2019年12月31日。

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7.沒有履行上述責任有什麼罰則?

沒有履行上述任何責任可被罰50,000港元, 另加每天罰款500元。

法庭亦會發出命令要求企業完成有關沒履行的責任。如企業沒有遵守法庭命令, 則會受檢控。

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官方資訊(官方內文暫只有英文版)：
https://www.ird.gov.hk/eng/tax/dta_cbc.htm

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乙. 轉讓定價文書

香港稅務局(“稅務局”)亦已於2018年修訂稅務條例以包含轉讓定價規則。

經修訂的稅務條例要求跨國企業應用公平獨立交易原則與相聯方(包括同一企業的總部與分公司)進行交易, 該原則應用於買賣/使用資產和提供服務的交易。 若稅務局認為有關交易不符合公平獨立交易原則, 而且企業利用有關交易產生稅務上的利益, 則有權根據經合組織提出的轉讓定價指引向有關企業作出轉讓定價的調整。

另外, 經修訂的稅務條例亦要求香港企業擬備(i)總體檔案和(ii)分部檔案作為轉讓定價文書的一部分，但設有豁免條文。

在此簡述轉讓定價文書的責任：

1. 轉讓定價文書的責任何時生效?
   生效期為2018年4月1日起始的會計年度。

2. 誰負責擬備轉讓定價文書?
   凡任何與外國相聯方(包括同一企業的總部與外國分公司)進行交易的香港企業, 只要未受豁免, 就有責任擬備轉讓定價文書。

3. 擬備轉讓定價文書的期限?
   期限為有關會計年度結束後的9個月內。
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4. 轉讓定價文書需保存多久?
   轉讓定價文書需保存最少7年。
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5. 沒有履行上述責任有什麼罰則?
   沒有履行上述責任可被罰50,000港元。

法庭亦會發出命令要求企業完成有關沒履行的責任。如企業沒有遵守法庭命令, 則會受檢控。

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丙. 申領香港居民身分證明書

香港與中國內地於早年簽訂的《全面性避免雙重課稅協定》給予香港居民(包括企業)稅務優惠。當中包括股息、利息、特許權使用費的優惠稅率(見下列表格)：

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註：

1. 如果受益人直接擁有支付股息公司至少25%的資本, 優惠稅率為5%。
2. 如果收取特許權使用費公司是從事飛機及船舶租賃業務, 優惠稅率為5%。

我司在2018年成功為企業客戶申請香港居民身分證明書。此申請案我們只呈上一次性的文件予香港稅務局(“稅務局”), 稅務局沒有作出任何提問, 便接納了我們的申請並迅速發出證明書。

很高興我司的服務為客戶提供高成效的回報, 從而省了一半的稅金!

再次提醒, 成功申請香港居民身分證明書與否取決於整體事實。 企業需符合若干條件, 除了需要在香港繳納利得稅, 企業還需要在香港有實體的業務運作, 當中因素包括業務性質、員工聘用、辦公室及固定資產的設置等。 另外, 企業亦應為匯款的實益擁有人。

我們歡迎企業提出有關申請時, 先咨詢我司的稅務顧問。

若對上述事項有任何疑問, 歡迎與保得利稅務(香港)有限公司的資深會計及稅務經理黃英妍小姐聯絡。

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黃英妍
資深會計及稅務經理
中環德輔道中134-136號中銀集團人壽保險大廈15樓
電話: (852) 2525 9991 |直線: 3173 1046 |
傳真: (852) 2877 6852
電郵:Pisces.Wong@portcullis.co|
網址: www.portcullis.co