IMF urges HK to introduce Tax Reforms

The International Monetary Fund (IMF) has urged Hong Kong to consider tax reform options in order to boost revenues  as well as maintain the competitiveness and flexibility of its economy.

In its annual report on the jurisdiction, the Fund observed that Hong Kong has become heavily reliant on real estate-related revenues and other volatile sources. Property transaction and recurrent real estate taxes accounted for more than 28% of total revenues on average during 2010-2016, up from an average of around 20% in the 2000s, according to the report.

The IMF noted that Hong Kong SAR relies more on tax revenue from property than other economies.

According to the IMF, Hong Kong also heavily relies on corporate tax revenues, with these accounting for 30% of revenues in 2015/2016, so, such revenues are “highly subject to the business cycle”.

The report said that Hong Kong’s authorities should start studying options to diversify and increase revenue streams in a “growth friendly way.”

The IMF’s main recommendation was the introduction of a value-added tax (VAT) or sales tax. This proposal has been studied and rejected in the past.

It also called for more progressive taxation, with Hong Kong’s top marginal rate low even in comparison to other low-tax financial centers.

Filed under: Business and Economy, HK as a Financial Centre, International Business Environment, News and politics, Offshore Legislation, Taxation

HK shortlisted for world’s potentially largest IPO

Reuters reports that Saudi Arabia has shortlisted Hong Kong, New York and London – singly or in a combination of two or all three – for what could be the world’s largest IPO as national oil company Aramco seeks an international listing, two sources with knowledge of the discussions said.

Riyadh is projected to raise as much as USD 100 billion from the sale of just 5% of Aramco if it achieves its estimated USD 2t valuation.

The Aramco listing is part of the administration’s reform roadmap spearheaded by Saudi Crown Prince Mohammad bin Salman to reduce the country’s economic dependence on oil.

Filed under: Business and Economy

HK and France to Share Multinationals’ Country-By-Country Reports

Hong Kong has signed an agreement with France aimed to automatically exchange country-by-country (CbC) reports filed by multinationals.

The CbC report is an element of a new 3-tiered standardized approach to transfer pricing documentation, as proposed in Action 13 of the OECD’s base erosion and profit shifting (BEPS) project. CbC reporting requires multinational enterprises to provide aggregate information on an annual basis, in each jurisdiction where they do business, relating to the global allocation of income and taxes paid, together with other indicators of the location of economic activity within the MNE group. Also, the report covers information on the entities doing business in a particular jurisdiction and the business activities each entity engages in.

The Multilateral Convention on Mutual Administrative Assistance in Tax Matters, also developed by the OECD, will be the main platform for Hong Kong to exchange CbC Reports with other jurisdictions. It significantly simplifies the process of agreeing with other states to exchange the reports, allowing states to either opt in or out of such for every signatory, of which there are 68 currently.

So far, Hong Kong has made bilateral CbC arrangements with France, Ireland, South Africa and the UK, for early reporting under the framework, with first exchanges covering reports for the year 2016 onward. It is seeking more bilateral agreements with its double tax treaty (DTA) partners.

Filed under: Business and Economy, HK as a Financial Centre, International Business Environment, Offshore Legislation, Taxation