Implementation of Country-by- Country (CbC) Reporting

Following the passage of the legislative framework for Hong Kong to implement the CbC reporting on 13 July 2018 regarding the CbC notification and reporting obligations with the Hong Kong Inland Revenue Department (“IRD”), the first CbC notification due date is 15 May 2019 for a Hong Kong entity with a financial yearend date of 31 December 2018.

A multi-national enterprise group (MNE Group) whose annual consolidated group revenue reaches the specified threshold amount of HKD 6.8 billion and has a Hong Kong Entity should carefully observe the statutory reporting requirements.

The IRD has been actively seeking to conclude as many bilateral arrangements with international tax partners as possible for the automatic exchange of CbC Reports which might relieve the reporting obligation of a Hong Kong entity whose ultimate parent company has already filed a CbC Report elsewhere.

Introduction of supplementary forms for annual tax filing

Starting from the year of assessment 2018/19, there are 10 supplementary forms introduced as part of the annual profits tax return. This indicates the IRD has undoubtedly elevated the requirements for more information disclosure from taxpayers as a continual commitment to implementing the Base Erosion and Profit Shifting (BEPS) package in Hong Kong.

It is foreseeable that the additional information collected will enable the IRD to objectively review and scrutinise taxpayers’ existing tax position, particularly in the area of transfer pricing and offshore profits tax regime. Taxpayers should be aware of the additional administrative burden in their annual Hong Kong tax filings. It is also reminded that taxpayers should keep sufficient documentary evidence in case of any challenges by the IRD.

PKF Comment

Given the additional statutory obligations in Hong Kong and the new disclosure requirements, enterprises in Hong Kong would be impacted from an administrative perspective. Attention should be paid by taxpayers when arranging their tax affairs in Hong Kong.

For further information or advice concerning the CbC reporting obligations in Hong Kong or any advice with respect to Hong Kong taxation, please contact Henry Fung at henryfung@pkf-hk.com or Candice Ng at candiceng@ pkf-hk.com or call +852 2806 3822.

This article is extracted from The second 2019 quarterly issue, the PKF Worldwide Tax Update.