May 14, 2020
Hong Kong conducts compulsory spontaneous exchange of information for certain tax rulings
Hong Kong’s Inland Revenue Department (IRD) recently issued a revised practice note (Revised DIPN 31) which explains that the IRD is now required to spontaneously furnish to the tax authorities of certain foreign jurisdictions any of the following four categories of tax rulings issued by the IRD:
(i) Rulings related to preferential tax regimes1
(ii) Unilateral Advance Pricing Arrangements and any other cross-border unilateral rulings in respect of transfer pricing
(iii) Permanent establishment (PE) rulings
(iv) Related party conduit rulings
IRD rulings on offshore claims in Hong Kong are not in-scope rulings
Revised DIPN 31 indicates that tax rulings in respect of Hong Kong offshore claims are not in-scope rulings that are required to be spontaneously exchanged as they do not fall within the four specified categories.
Jurisdictions to be provided with in-scope tax rulings
Information on in-scope tax rulings will be spontaneously exchanged by the IRD to the tax authorities of the resident jurisdictions of all of the following:
(i) All related parties2 with which the taxpayer has entered into a transaction for which a ruling is granted. In the case of a PE ruling, the ruling is required to be exchanged with the residence jurisdiction of the head office or the jurisdiction of the PE, as the case may be
(ii) The taxpayer’s ultimate parent company
(iii) The taxpayer’s immediate parent company
Legal framework for exchange of in-scope tax rulings
In-scope rulings can be exchanged within the framework of either: (i) Hong Kong’s network of tax treaties; or (ii) the Multilateral Convention on Mutual Administration Assistance on Tax Matters.
1. Hong Kong currently operates the following preferential tax regimes: (1) profits tax concession for corporate treasury centers; (2) profits tax concession for professional reinsurers; (3) profits tax concession for captive insurers; (4) profits tax exemptions for ship operators; and (5) profits tax concessions for aircraft lessors and aircraft leasing managers.
2. The threshold for determining related parties has been set at 25%. That means, two parties would be considered related if the first person has a 25% or greater investment in the second person or there is a third person that holds a 25% or greater investment in both.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Tax Services Limited, Hong Kong
Ernst & Young LLP (United States), Hong Kong Tax Desk, New York
Ernst & Young LLP (United States), Asia Pacific Business Group, New York