County-by-country (CbC) reporting

In our January 2022 edition, we will continue to study three issues highlighted in the 2020 Annual General Meeting between the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and the Inland Revenue Department (“IRD”)

3. COUNTY-BY-COUNTRY (CBC) REPORTING – CHANGES IN ULTIMATE PARENT ENTITY (UPE) DURING THE FINANCIAL YEAR

[H2] MNCs should be mindful of the threshold and penalty of CbC notification and reporting in Hong Kong

Section 58H(1) of the IRO requires Hong Kong entities of a reportable group to file a written notice relating to the group’s CbC reporting obligation (CbC notification).

Under normal circumstances, a Hong Kong entity should only file one CbC notification each year. However, many taxpayers encountered difficulties in CbC notification when their UPE changed during the financial year. It is unclear whether it should report the financial information of the former or current UPE.

In the 2020 Annual Meeting between HKICPA and IRD, the IRD confirmed the Hong Kong entity has to file CbC notification for both former UPE and current UPE if the financial data of the Hong Kong is incorporated into the consolidated financial statements of both UPEs, provided that the consolidated revenue of both UPEs exceeds the reporting threshold.

When a Hong Kong entity is required to file multiple CbC notifications or returns for the same accounting period, the entity is advised to approach the Assessor for arrangements via the message box in the CbC Reporting Portal, since the portal now only supports submission of one notification or report for a financial year. You may also consult with your tax advisors to facilitate the liaison with the IRD.

POINTS TO NOTE
As a general reminder, the threshold for CbC Reporting in Hong Kong is that consolidated revenue of the Group for the preceding year exceeds HK$6.8 Billion (or EUR 750 million).
The following circumstances could not evade obligation to file CbC notifications in Hong Kong:
The Hong Kong entity did not enter into related party transactions during the year; and
The Group has filed CbC return in other tax jurisdictions.
The maximum penalty for failure to file CbC notification is HK$50,000 and an additional HK$500 per day during which the offence continues after conviction.