What is BEPS 2.0

Base Erosion and Profit Shifting 2.0 (“BEPS 2.0”) is a global initiative aimed at countering tax evasion risk arising from strategies employed by multinational enterprises (MNEs). This initiative seeks to ensure a fair distribution of profits among jurisdictions based on the actual economic activities conducted in each jurisdiction.

Hong Kong BEPS 2.0 Pillar 2 development and implementation

Hong Kong, as an international financial and trade hub, is a major participant in the BEPS 2.0 framework. The Hong Kong Government on 21 December 2023 published a consultation paper on implementation of the Pillar Two global minimum tax in Hong Kong. The Government indicated in the 2023/24 Budget that it plans to implement the GloBE Rules (i.e., Income Inclusion Rule (“IIR”), Undertaxed Profits Rule (“UTPR”), and Hong Kong Minimum Top-up Tax (“HKMTT”)) in Hong Kong from 1 January 2025, which is part of BEPS 2.0 Pillar 2 Movement.

The GloBE Rules only apply to in-scope MNE groups, meaning MNE groups with consolidated annual revenue of or above EUR750 million. In other words, taxpayers that either have no foreign presence or have less than EUR750 million in consolidated annual revenue fall outside the scope of the GloBE Rules. Under the GloBE Rules, in-scope MNE groups have to pay a global minimum tax of at least 15% on income derived by their constituent entities in every jurisdiction where they operate.

Meanwhile, the taxing right of Hong Kong is preserved by implementing HKMTT such the Hong Kong can bring up the effective tax rate of in-scope MNE groups to 15% and can reduce the compliance burden of taxpayers concerned.

Under the GloBE rules, every constituent entity of an in-scope MNE group must file a standardized GloBE Information Return (GIR) in its jurisdiction. The GIR and associated notifications are to be filed with tax authorities no later than 15 months after the fiscal year's end, with an extended 18-month deadline for the transition year.

Services Offered by Our Tax Experts

As tax advisors, we can assist MNEs operating in Hong Kong in the following ways:-

- Advice on Compliance: We provide advice on how to comply with the BEPS 2.0 Pillar 2 rules and Hong Kong tax regulations.

- Tax Planning: We help MNEs structure their operations and transactions in a tax-efficient manner while remaining compliant with BEPS 2.0 Pillar 2 and Hong Kong tax laws.

- Representation before Tax Authorities: We represent MNEs before the Hong Kong tax authorities in matters related to BEPS 2.0 Pillar 2 compliance and audits.

- Transfer Pricing Documentation: We assist MNEs in preparing transfer pricing documentation to demonstrate compliance with BEPS 2.0 requirements.