Consultation Paper on measures to counter Base Erosion & Profit Shifting

The Government of Hong Kong issued a consultation paper to gauge view on implementation of measures by the Organisation for Economic Co-operation and Development (OECD) to counter base erosion and profit shifting (BEPS) of enterprises on 26 October 2016. The Consultation Paper consists of seven chapters including: Chapter 1 : Overview of the BEPS package Chapter 2 : Implementation strategy of Hong Kong Chapter 3 : Transfer pricing regulatory regime Chapter 4 : Transfer pricing documentation and Country-by-Country (CbC) reporting Chapter 5 : Multilateral Instrument Chapter 6 : Other related matters Chapter 7 : Views sought The priority of the government will put in place the necessary legislative framework for transfer pricing rules, spontaneous exchange of information (EOI) on tax rulings, the CbC reporting requirement, cross-border dispute resolution mechanism and multilateral instrument. The transfer pricing documentation was required based on a three-tiered standardized approach in master file, local file and CbC report. All enterprises which satisfy any two of the following three conditions should be required to prepare the master and local files – total annual revenue exceeding HK$100 million, total assets exceeding HK$100 million and exceeding 100 employees. Enterprises with annual consolidated group revenue equal to or exceeding EUR750 million is mandated to file CbC report within 12 months from the end of the fiscal year. Spontaneous exchange of information on both past rulings and future rulings will be applied to six categories of taxpayer-specific rulings including rulings relating to preferential regimes, transfer pricing advance pricing arrangement, downward adjustment of taxable profits, permanent establishment ruling, related party conduit ruling and any other type of ruling that could give rise to BEPS concerns. For details, please refer to http://www.fstb.gov.hk/tb/en/docs/BEPS-ConsultationPaper-e.pdf