OECD released a Statement in October 2021 to confirm certain parameters to be used in the implementation of Two-Pillar solution under the BEPS 2.0 project.

See our previous Newsletters on highlights of BEPS 2.0 and summary on Two-Pillar at:

  • Pillar One: For multinational enterprises with global revenue of over EUR 20 billion (around HKD 181 billion) and profit margin exceeding 10%, they would be required to allocate 25% of the “residual profits” to market jurisdictions using a revenue-based allocation key. No actual percentage is stated in previous Statement.
  • Pillar Two: The minimum tax rate is stated to be at 15%, which targets those multinational enterprises with global revenue of over EUR 750 million (around HKD 6.8 billion). The threshold of “at least 15%” is stated in previous Statement.

Also, given that Pillar One under Multilateral Convention is implemented, all Digital Services Taxes and other relevant similar measures currently maintained by certain countries (e.g., Italy, France) will be removed. No newly enacted Digital Services Taxes will be imposed on taxpayers from now on until the end of Year 2023 in general due to the agreement by countries on implementation of Pillar One.

Points to note

The newly issued Statement in October demonstrates the decisive implementation of BEPS 2.0 measures by the OECD while involving countries are giving positive responses towards the evolution.

We could not ignore the global trend of tax transparency and global measures on “minimum tax rate” to be adopted on corporations. For Hong Kong and Mainland China enterprises, the implementation of BEPS 2.0 will cause an impact to the following taxpayers:

  • Taxpayers who apply for offshore tax exemption in Hong Kong (while no tax has been paid in another jurisdiction);
  • Taxpayers who pay considerable sums to companies located in jurisdictions where corporate tax rate is lower than 15% (i.e., the BVI, Cayman Islands, etc.); and
  • Multinational groups exercise their management activities outside Macau, but retain significant amount of profits in Macau (please note that the current corporate tax rate in Macau is 12%, which is lower than the proposed minimum tax rate of 15%).

Taxpayers should consider whether they should revise their tax planning strategies in order to keep abreast with the global tax development in the near future.

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