On June 3, 2016, Hong Kong issued a press release saying that the Government published the Inland Revenue (Amendment) (No. 2) Ordinance 2016 (the Amendment Ordinance) in the Gazette. The purpose of the Amendment Ordinance is to encourage multinationals to establish corporate treasury centers in Hong Kong.
The Amendment Ordinance allows, under specified conditions, the deduction of interest by a corporation engaged in an intra-group financing business in Hong Kong where the interest is paid to a related corporation outside Hong Kong, and the lender is subject to a similar tax on interest at a rate not lower than the “reference rate”. See BEPS Action 4 recommendations. The lender cannot have a contractual or legal obligation to pass the interest to another person, unless arising out of an arm’s length transaction. The Amendment Ordinance also provides for a concessionary profits tax rate at 8.25 percent for qualifying corporate treasury centers, and clarifies profits tax and stamp duty treatments related to bank-issued regulatory capital securities (RCSs).
On May 26, 2016, the Legislative Council passed the Inland Revenue (Amendment) (No. 4) Bill 2015. The concessionary profits tax rate for qualifying corporate treasury centers will apply to relevant profits accrued on or after April 1, 2016, and the new interest deduction rule will apply to interest payable on or after this date. Revised provisions in relation to RCSs and related amendments to the Stamp Duty Ordinance went into effect on June 3, 2016.
The Inland Revenue Department will issue Departmental Interpretation and Practice Notes to explain the operation of the tax measures and anti-avoidance provisions.
The Amendment Ordinance specifically includes the following sections:
- Profits tax concession for qualifying corporate treasury centers.
- Interest in respect of borrowing and lending of money with associated corporations.
- Tax treatment of RCS.
- Transitional provisions.
- Consequential amendments to Inland Revenue rules.
- Related amendments to Stamp Duty Ordinance.
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