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Hong Kong SAR defers implementation of global minimum tax to 2024

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Lewis Lu and John Timpany of KPMG China discuss Hong Kong SAR government’s open letter which indicated the deferral in implementation of global minimum tax under BEPS 2.0 in Hong Kong SAR.

The Secretary for Financial Services and the Treasury issued an open letter on August 15 2022 to provide the latest update on the implementation of pillar two under BEPS 2.0 in Hong Kong SAR. The letter can now be accessed via this link.

Key messages of the letter

The key messages of the letter are as follows:

  • The implementation of the income inclusion rule (IIR) has now been deferred from 2023 to 2024 at the earliest - the government plans to introduce the necessary legislative proposals to the Legislative Council in 2023;

  • As for the implementation timeline for the undertaxed payment rule, the government will monitor the implementation status of other jurisdictions and review Hong Kong SAR’s own implementation plan;

  • The government originally announced in the 2022–23 Budget delivered in February 2022 that it would consider introducing a domestic minimum top-up tax in Hong Kong SAR starting from year of assessment 2024–25 (i.e. April 1 2024) – this will now also be subject to the implementation status of other jurisdictions;

  • In the coming months, the government will continue to closely monitor the OECD's latest timetable on the implementation of BEPS 2.0 and the implementation plans of other jurisdictions, and keep stakeholders closely informed of the implementation progress of Hong Kong SAR; and

  • As the OECD’s aims to release the implementation framework of the global anti-base erosion (GloBE) rules under pillar two in late 2022, the government plans to launch a consultation towards the end of 2022 to collect views on the translation of the pillar two rules into domestic legislation and the relevant requirements.

KPMG observations

We welcome the government’s decision to defer the implementation of pillar two in Hong Kong SAR in line with international developments. The timely issue of the letter provides much needed clarification on the government’s implementation plan of pillar two in Hong Kong SAR.

Given the likely delay in the global minimum tax implementation in the EU and the fact that some other jurisdictions (e.g. the UK and Switzerland) have now planned to implement the IIR in 2024 instead of 2023, similar deferral in Hong Kong SAR is sensible.

We see no need for Hong Kong SAR to be the first mover on pillar two implementation. The deferral also allows more time for both the government and the in-scope multinational enterprise (MNE) groups in Hong Kong SAR to better prepare for the significant challenges pillar two implementation will present.

Having said that, in-scope MNE groups in Hong Kong SAR should recognise by now that it is almost (if not absolutely) certain that Hong Kong SAR will go ahead to implement pillar two and it is just a matter of timing as to when the implementation will take place.

These groups should make good use of the additional time available to prepare for perhaps the most significant changes to the Hong Kong SAR tax system in the past few decades.

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