Hong Kong Needs Measured BEPS Response: Report

by Mary Swire, Tax-News.com, Hong Kong

06 January 2017

Hong Kong's Financial Services Development Council (FSDC) has issued a paper setting out key recommendations for the Government to consider in the area of international tax law.

The paper, which was issued on December 29, 2016, recommends that the Government should issue clearer guidance on appropriate transfer pricing methodologies for complex global book trading operations for taxpayers to follow should they wish to originate and trade international financial products in Hong Kong.

The report recommends that the guidance should provide that no single method must be applied in all cases and instead there should be a list of acceptable alternative methodologies, having regard to the different facts and circumstances of the Authorised Institutions and Securities and Futures Commission (SFC) licensed entities.

On the proposed implementation of the base erosion and profit shifting (BEPS) recommendations to limit the deductibility of interest (or financial payments economically equivalent to interest), the paper notes that the OECD's recommended debt ratios could have an adverse impact on highly leveraged financial products originating from or being traded in Hong Kong. It recommended further analysis from the Government to ensure that Hong Kong's reaction to the BEPS project does not adversely impact the territory's financial sector.

The paper also notes the importance of Hong Kong maintaining a robust and beneficial tax treaty network and recommends new deals with Australia, India, the Philippines, Singapore, Taiwan, and jurisdictions along "the Belt and Road."

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