Hong Kong Tax Newsflash

The synthesised/consolidated texts of various tax treaties as modified by the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) and the protocol(s) are now available on the Inland Revenue Department’s (IRD) website.

Background

Back in June 2017, China signed the MLI with the OECD and extended its application to Hong Kong SAR by way of territorial extension.  Further to the deposit of the instrument of approval and the notification confirming that Hong Kong has completed its internal procedures for the entry into effect of the MLI, the MLI provisions have become effective, subject to the completion of the legislative and other relevant procedures of the MLI by the tax treaty partners.  

As a recap, Hong Kong only implements the mandatory provisions of the MLI, including the preamble text stating the intention of the tax treaty, the principal purpose test and the dispute resolution mechanism.  Please refer to our Hong Kong Tax Analysis Issue H75/2017, Hong Kong Tax Newsflash (Issue 153) and Hong Kong Tax Newsflash (Issue 161) for more details.

Effective dates of the MLI provisions

Out of the 39 tax treaties covered by the MLI, 30 of them have completed the procedures for entry into effect of the MLI.  The links to synthesised text of the tax treaties, as well as the effective dates of the MLI provisions in Hong Kong and the treaty partners are set out below: 

Application of MLI provisions to other tax treaties

Some jurisdictions (e.g. Italy, Kuwait, Mexico, Russia and Vietnam) have not yet completed the procedures for entry into effect of the MLI.

Some tax treaties (i.e., with Estonia, Finland, Georgia, Macao, China, Serbia and Mauritius), though not covered by the MLI, have already adopted the relevant MLI provisions.  Therefore, there is no need to apply the MLI to modify their applications.

Our observation

The synthesised/consolidated texts would facilitate the understanding of the application of the tax treaties as modified by the MLI and the protocol(s).  The texts in the tax treaties, the protocol(s) and the MLI should be referred to in case of conflict with the synthesised/consolidated texts.  The modifications made by the MLI to a covered tax treaty and the timing of entry into effect of those modifications depend on the reservations and notifications applicable to Hong Kong and the tax treaty partner under the MLI.  Taxpayers should pay attention to the effective dates of MLI provisions when reviewing their cross-border transactions.

^{1  with respect to the event giving rise to the withholding tax occurs on or after that date} 

^{2  with respect to the event giving rise to the withholding tax occurs on or after the first day of the next taxable period that begins on or after that date}

^{3  with respect to the years of assessment / taxable periods beginning on or after that date}

^{Tax Newsflash is published for the clients and professionals of Deloitte Touche Tohmatsu. The contents are of a general nature only. Readers are advised to consult their tax advisors before acting on any information contained in this newsletter.}

If you have any questions, please contact our professionals:

Authors

Doris Chik
Tax Partner
+852 2852 6608
dchik@deloitte.com.hk

Carmen Cheung
Tax Manager
+852 2740 8660
carmcheung@deloitte.com.hk

Kiwi Fung
Tax Manager
+852 2258 6162
kifung@deloitte.com.hk

International and M&A Tax

National Leader
Vicky Wang
Tax Partner
+86 21 6141 1035
vicwang@deloitte.com.cn 

Hong Kong
Anthony Lau
Tax Partner
+852 2852 1082
antlau@deloitte.com.hk