Public consultation opens on BEPS 2.0 implementation in Hong Kong

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Public consultation opens on BEPS 2.0 implementation in Hong Kong

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Lewis Lu and John Timpany of KPMG China discuss the potential implementation of the GloBE rules and a minimum top-up tax in Hong Kong from 2025

The GloBE rules and domestic minimum top-up tax


The OECD Inclusive Framework on BEPS (IF) published a statement on implementing a two-pillar solution under BEPS 2.0 in October 2021. The key elements under pillar two are:

  • A global minimum tax of 15% on a jurisdictional basis governed by the GloBE rules; i.e., the income inclusion rule (IIR) and the undertaxed profits rule (UTPR);

  • The subject-to-tax rule; and

  • A domestic minimum top-up tax (DMTT) that takes priority over the GloBE rules for in-scope multinational enterprise (MNE) groups.

Under the IIR, the priority taxing right of the low-taxed profits of a foreign subsidiary of an in-scope MNE group is allocated to the ultimate/intermediate parent jurisdiction. However, the subsidiary jurisdiction can preserve its primary taxing right of such low-taxed profits by introducing a DMTT in the jurisdiction as the DMTT will take priority over the IIR.

The interaction between the global minimum tax and the DMTT will depend on whether:

  • The DMTT is a qualified DMTT (QDMTT); and

  • The QDMTT qualifies for the QDMTT safe harbour.

Status of the DMTT

Interaction with the global minimum tax/GloBE rules

1. Not a QDMTT

DMTT paid is treated as covered tax under the GloBE rules

2. A QDMTT

QDMTT paid is credited against the top-up tax payable under the GloBE rules

3. A QDMTT qualifying for the QDMTT safe harbour

Top-up taxes under the GloBE rules in the QDMTT jurisdiction deemed as zero


Although it is not mandatory for IF members to implement the global minimum tax or the DMTT, it is expected that many jurisdictions will implement the IIR and/or the DMTT in 2024 or 2025 to protect their taxing rights under pillar two.

In Hong Kong SAR (Hong Kong), the government indicated in the 2023–24 Budget that it plans to implement the global minimum tax and a DMTT in Hong Kong from 2025 onwards.

The consultation paper


The Hong Kong government published a consultation paper on BEPS 2.0 implementation in Hong Kong on December 21 2023. The consultation paper provides an overview of the GloBE rules under pillar two of BEPS 2.0, sets out the government’s proposals on implementing the GloBE rules and a DMTT in Hong Kong (HKMTT), and seeks views on certain aspects of the government’s proposals and other open issues. The consultation period lasts for three months, until March 20 2024.

Implementation of the GloBE rules in Hong Kong


There is generally no room for deviating from the internationally agreed GloBE rules for domestic implementation in Hong Kong. As such, the consultation focused on the legislative approach and administrative framework rather than the technical aspects of the GloBE rules. The key government proposals contained in the consultation paper include the following.

1. Effective fiscal year

To apply the IIR and UTPR (as well as the HKMTT) to accounting periods commencing on or after January 1 2025.

2. Legislative approach

The legislative methodology adopted will follow these principles:

  • A hybrid legislative approach – to directly incorporate the GloBE Model rules into the Inland Revenue Ordinance (IRO) as far as practicable, with limited adaptations;

  • To apply the GloBE rules in a way that best secures consistency with the OECD’s commentary and administrative guidance (AG) that are in force immediately before the enactment;

  • Top-up tax charged under the GloBE rules and the HKMTT will be treated as profits tax; and

  • Specific provisions may be added to deal with the interaction between the enacted GloBE rules and the existing provisions of the IRO.

3. Definition of Hong Kong resident entity

As there is not a general definition of ‘Hong Kong resident’ in the IRO, a definition of ‘Hong Kong resident entity’ will be introduced for the purposes of the GloBE rules and the HKMTT. In this regard, an entity incorporated/constituted in Hong Kong or an entity incorporated/constituted outside Hong Kong but normally managed or controlled in Hong Kong will be a Hong Kong resident entity. The above definition will apply retrospectively from January 1 2024 given that some jurisdictions are applying the IIR from 2024.

For more details of the other government proposals in the consultation paper – including (i) open issues for domestic implementation, (ii) design and administration of the HKMTT, and (iii) the proposed tax compliance and administration framework – please refer to this KPMG publication.

The next step


Businesses in Hong Kong impacted by pillar two should take the opportunity of the public consultation to express any views and/or concerns they may have on the implementation of the GloBE rules and the HKMTT in Hong Kong. Other than the issues set out in the consultation paper, consideration should also be given to whether any further clarifications are required on the interpretation and application of any provisions of the GloBE rules or comments set out in the OECD’s AG to facilitate compliance by businesses.

As the next step, the government plans to develop the pillar two legislative proposal for submission to the Legislative Council in the second half of 2024. In-scope businesses should closely monitor the pillar two legislative status in Hong Kong as it may impact the accounting for pillar two taxes in their financial accounts (for example, the new pre-regime disclosure requirement) under Hong Kong Accounting Standard 12 on Income Taxes.

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