As you may recall, the Organisation for Economic Co-operation and Development (“OECD”) announced in July 2021 the international tax reform framework of a two-pillar solution to tackle the base erosion and profit shifting risks arising from digitalisation of the economy (commonly known as “BEPS 2.0”). In October 2021, Hong Kong joined more than 130 jurisdictions in committing to implementing the BEPS 2.0. Pillar Two of BEPS 2.0 targets multinational enterprise (“MNE”) groups with annual consolidated revenue of at least 750 million euros. MNE groups are required to pay a minimum tax of 15 per cent in respect of the profits derived from every jurisdiction they operate in.

In 2023-24 Budget, the Financial Secretary announced that Hong Kong was planning to apply the global minimum effective tax rate of 15 per cent on in-scope MNE groups and implement the domestic minimum top-up tax (referred to as the Hong Kong minimum top-up tax or “HKMTT” below) starting from 2025 onwards, with a view to fulfilling Hong Kong’s international tax commitment and safeguarding Hong Kong’s taxing rights.

In formulating the legislative proposal, the government has undertaken to preserve the simplicity, certainty and transparency of Hong Kong’s tax regime, and minimise the tax compliance burden of in-scope MNE groups. For this purpose, the government has launched a consultation exercise to gauge views on specific implementation issues, and issued a press release (https://www.info.gov.hk/gia/general/202312/21/P2023122100211.htm) last week to provide the relevant details. The consultation paper is available on the website of the Financial Services and the Treasury Bureau (https://www.fstb.gov.hk/tb/en/others/consultation.htm).

Briefly, the consultation paper explains the concepts of the global anti-base erosion rules promulgated by the OECD for implementing the global minimum tax, as well as the HKMTT, and seeks views on the specific implementation issues including the tax compliance and administration framework. Subject to the outcome of the consultation exercise, the government would introduce legislative amendments into the Legislative Council in the second half of 2024.

Should you have any comments on the consultation, please write to the Financial Services and the Treasury Bureau by e-mail (beps@fstb.gov.hk) or by post (24/F, Central Government Offices, 2 Tim Mei Avenue, Tamar, Hong Kong) before 20 March 2024. Of course, you are also welcome to convey your views through the Association.

Thank you for your attention.