The global tax landscape has been changing on a rapid pace in recent years due to the Base Erosion Profit Shifting (“BEPS”) actions promulgated by the Organization for Economic Co-operation and Development. To align with the fast evolving global tax developments, the Government of the Hong Kong Special Administrative Region has introduced a series of new tax legislations in recent years. New transfer pricing legislations including re-fined definition of Permanent Establishment (“PE”), Development, Enhancement, Maintenance, Protection and Exploitation of intellectual property (“DEMPE functions”) have been introduced. The Inland Revenue Department (“IRD”) has also issued Departmental Interpretation and Practice Notes (“DIPN”) No. 58, 59 and 60 in July 2019 to provide detailed practice guidelines on the complicated transfer pricing legislations. Revised DIPN No. 39 was just issued in March 2020 to provide guidelines on the change in tax treatment of server PE in Hong Kong and to explain the tax principles that broadly apply to electronic commerce transactions and digital assets.
To cope with the changes in legislations, the IRD requires taxpayers to provide more disclosure in the Profits Tax Returns. A number of fields in the Profits Tax Return for the year of assessment 2019/20 has been amended or added to facilitate the additional disclosure. Taxpayers are now required to provide the below additional information in the Profits Tax Return Forms BIR51 (for corporations) and BIR52 (persons other than corporations):
- the amount of loss brought forward from prior year
- deemed assessable profits under sections 20AX and 20AY of Inland Revenue Ordinance (“IRO”) in relation to tax-exempt funds and tax-exempt special purpose entities held by the funds
- state whether the taxpayer is a PE in Hong Kong of a non-Hong Kong resident person. If so, state whether the taxpayer had transactions with other parts of the non-Hong Kong resident person
- state whether the taxpayer would elect to align the tax treatment of financial instruments with their accounting treatment and have the related profits assessed in accordance with sections 18I to 18L of IRO
- state whether the taxpayer made any value creation contributions in Hong Kong in relation to the intellectual property of a non-Hong Kong resident associate
- indicate attachment of supplementary form S2 that the taxpayer had transactions with non-resident associated persons / other parts of the non-Hong Kong resident person
- state the amount of profits from transactions in assets of a class specified in Schedule 16C of IRO and incidental transactions exempted from payment of Profits Tax
- state the amount of profits from transactions in relation to specified securities exempted from payment of Profits Tax
With the ever-changing global development on BEPS actions and the tremendous amount of new legislations in place, taxpayers should revisit its current tax position to identify areas of exposure and uncertainty. Professional advice should be sought as soon as possible if taxpayers are in doubt about the new disclosure requirements in the Tax Returns to minimize any potential penalty as a result of filing incorrect Returns.
Extended filing due date for 2019/20 Profits Tax Returns
The IRD has postponed bulk issue of the 2019/20 Profits Tax Returns to 4 and 5 May 2020.
For taxpayers who have appointed tax representatives, the deadlines for submitting the 2019/20 Profits Tax Returns under the Block Extension Scheme are as follows:
| Year-end date fall between |
Code |
Due Date |
| 1 Apr 2019 – 30 Nov 2019 |
N |
30 Jun 2020 |
| 1 Dec 2019 – 31 Dec 2019 |
D |
17 Aug 2020 |
| 1 Jan 2020 – 31 Mar 2020 |
M |
16 Nov 2020 |
The Block Extension Scheme is not applicable to a corporation in liquidation.