Hong Kong issued the Committee Stage Amendments , on 16 April 2025, to address concerns that stakeholders had raised regarding a draft bill to implement Pillar Two of the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) 2.0 initiative. (For background, see EY Global Tax Alert, Hong Kong publishes draft legislation on BEPS 2.0 Pillar Two , dated 23 January 2025.)

The Hong Kong government aims to complete the legislative process within first half of 2025. The Income Inclusion Rule (IIR) under Pillar Two and the Hong Kong minimum top-up tax (HKMTT) will be effective retroactively from 1 January 2025 upon passage of the bill, while implementation of the Undertaxed Profits Rule (UTPR) will be postponed.

Among the proposed amendments, the previously proposed main-purpose test as a general anti-avoidance rule (GAAR) will be replaced by the sole-or-dominant test under existing GAAR. References will also be made to OECD guidance on whether the outcome of an arrangement is inconsistent with the OECD rules before the GAAR could be invoked. The Hong Kong government will also clarify in its guidance that the GAAR will generally not apply to transactions entered into on or before 30 November 2021.

Other key proposed amendments are generally favorable to taxpayers, as summarized below:

• Incorporate the June 2024 and January 2025 Administrative Guidance published by the OECD.
• Remove the personal liabilities imposed on responsible directors or officers or their service providers for failing tax reporting obligations.
• Limit the timeline for raising additional top-up tax assessments to eight years for non-tax-evasion cases, and 12 years for tax-evasion cases.
• Limit the timeline for initiating proceedings for tax offenses to eight years after the commitment of offenses.
• Extend the time limit for reopening an assessment and request for tax refund due to a correction of error or omission to eight years.
• Shorten the required time for record keeping to nine years.
• Extend the tax-neutral effect for intra-group tax reimbursement to cover all types of top-up taxes, including those under the IIR.
• Clarify that the initial expansion relief under Model Rule 9.3 will apply to HKMTT if none of the ownership interest in the Hong Kong constituent entities is held by a parent entity subject to an IIR (i.e., Option 2 under the OECD Commentary).
• Extend time limit to at least 60 days for Hong Kong constituent entities to file a Global Anti-Base Erosion (GloBE) Information Return (GIR) if exchange mechanisms fail. A Hong Kong constituent entity is not required to file a GIR if another constituent entity has complied.
• Facilitate the adoption of local accounting standard for the HKMTT calculation by requiring in-scope Hong Kong constituent entities that have prepared accounts under the local accounting standard to submit their profits tax returns with such accounts.
• Require mandatory e-filing of profits tax returns of in-scope entities with fiscal years ended on or after 1 April 2025.

In addition, the Hong Kong government clarifies the interaction between the Pillar Two rules and other Hong Kong tax regimes:

• Qualified domestic minimum top-up tax (QDMTT) paid in foreign jurisdictions can generally be creditable when the related income is also subject to tax in Hong Kong.
• When assessing the "subject to tax" condition under the foreign-sourced income exemption regime, the QDMTT paid in a foreign jurisdiction will be regarded as a qualifying similar tax, but the corporate tax rate of the foreign jurisdiction must still be of at least 15%. (For background, see EY Global Tax Alert, Hong Kong passes bill on refined foreign-sourced income exemption regime , dated 16 December 2022.)

Implications

The proposed amendments are welcome. Particularly helpful are the proposals that the GAAR will generally have no retrospective effect and will not go beyond what the OECD considers to be avoidance or abusive arrangements.