Timing Differences in Country-by-Country (CbC) Notification

In our August 2022 Issue of Newsletter, we will study three points for attention in the latest development of Hong Kong Transfer Pricing Documentation Requirements.

3. Timing Differences in Country-by-Country (CbC) Notification

Additional procedures are still requested when the UPE / SPE submit its CbC Notification after the Hong Kong Constituent Entity

In Hong Kong, Taxpayers exceeding the threshold are generally required to submit the Country-by-Country (CbC) Notification in the online portal of the IRD within 3 months from the Accounting Year-End date. Very often the CbC Notification deadline of the overseas Ultimate Parent Entity (UPE) / Surrogate Parent Entity (SPE) is 6 / 12 months after the Accounting Year-End date, and thus the UPE / SPE has not yet filed the CbC Notification by the time when the Hong Kong entity filed that to the IRD.

Given the above situation, in Part 2.4 of the CbC Notification in Hong Kong, the Hong Kong entity has to fill in “No” if the UPE / SPE has not yet filed their CbC Notification by that time. In such case, the IRD will then issue CbC return to the Hong Kong entity.

In such case, after the UPE / SPE files the CbC Notification in its own tax jurisdiction, the Hong Kong entity can apply for a request for not filing the CbC return, but the HKICPA representatives still consider that this represents additional financial and administrative burden to the Taxpayers. Nevertheless, the IRD insisted that such practice is necessary to ensure the Taxpayer has compiled with its CbC obligation.

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 does 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 (i.e., before the completion of CbC Obligation) after conviction.