October 20, 2021
Hong Kong reiterates its commitment to BEPS 2.0 project
Following the OECD statement (8 October 2021) on the agreement on the core design features of the two-pillar solution developed in the BEPS 2.0 project, the Hong Kong government reiterated its earlier position that it will implement the BEPS 2.0 package based on the BEPS 2.0 model rules to be finalized by the OECD.1 The two pillars are:
The Hong Kong Government plans to consult stakeholders during the domestic legislative exercise.
The Hong Kong government acknowledged that the two-pillar solution would reduce the ability for jurisdictions to introduce exemptions or low rates as a means to enhance their tax competitiveness in the future. However, Hong Kong would be able to reinforce its competitive advantages under a more level playing field.
In addition to implementing the two-pillar solution, once finalized, Hong Kong is expected to make changes to its long-established territorial-source regime for passive income (e.g., interest and royalties) by the end of 2022, which would allow it to be removed from the EU’s “Gray list.”2
Taxpayers should closely monitor these developments and assess how the changes would impact their current operations or tax policies.
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
Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago