Hong Kong: The multilateral convention to implement BEPS in Hong Kong has been signed!

On 7 June 2017, Hong Kong (represented by Mainland China) has become a party to the Multilateral Convention (“Multilateral Instrument” or “MLI”) to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“BEPS”). 

Many of the treaty-related measures as recommended by the international community can only be implemented by amending existing tax treaties. There are more than 3,000 tax treaties across the world. The MLI is orchestrated by the Organisation for Economic Cooperation and Development (“OECD”), aiming to assist participated jurisdictions to amend tax treaties efficiently without having to negotiate amendments on a one-to-one basis. The MLI generally covers the following key treaty-related areas: 

(i) Treaty abuse 

(ii) Treaty dispute resolution 

(iii)Hybrid mismatches (e.g. transparent entities, dual resident entities, etc.) 

(iv)Permanent establishment (e.g. rules for determining whether a permanent establishment exists or not) 

Hong Kong’s tentative and provisional position on MLI can be accessed via this link: http://www.oecd.org/tax/ treaties/beps-mli-position-hong-kong.pdf 

In view of the above key development, corporate groups with cross-border businesses and investments should review their existing structures and assess the potential impacts of Hong Kong’s provisional MLI position. Additionally, when handling treaty benefits/ protection claims made by a Hong Kong entity, the Hong Kong tax authority may put more and more emphasis on factors like having business substance and commercial purposes of setting up.

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