Introduction
As part of the global initiative to enhance tax transparency and combat tax avoidance, Hong Kong has implemented Country-by-Country Reporting (CbCR) requirements in line with the OECD’s Base Erosion and Profit Shifting (BEPS) Action 13. This regulation impacts multinational enterprise (MNE) groups with significant global revenue, ensuring tax authorities have access to key financial data for tax assessment.
This article provides an in-depth look at Hong Kong’s CbCR framework, its applicability, filing requirements, and compliance considerations for multinational businesses.
What is Country-by-Country Reporting (CbCR)?
CbCR is a global reporting requirement that mandates large MNE groups to disclose financial and tax-related information for each jurisdiction in which they operate. This data is used by tax authorities to assess potential tax risks and ensure fair taxation across borders.
Who is Required to File a CbC Report in Hong Kong?
Hong Kong’s CbCR regulations apply to MNE Groups that meet the following criteria:
- Global Revenue Threshold: The MNE Group must have consolidated revenue of at least EUR 750 million (HKD 6.8 billion) in the previous fiscal year.
- Hong Kong Presence: The MNE Group has at least one Hong Kong constituent entity, which could be:
– The Ultimate Parent Entity (UPE)
– A subsidiary or branch of an MNE Group required to file a local report
Filing Requirements and Deadlines
Multinational enterprises operating in Hong Kong must adhere to the following filing obligations:
1. Notification Requirement
MNE entities in Hong Kong must notify the Inland Revenue Department (IRD) regarding their CbCR filing obligations. The notification must be submitted within three months after the end of the MNE Group’s fiscal year.
2. Submission of the CbC Report
The CbC report must be filed within 12 months after the end of the fiscal year. Reports must be submitted electronically through Hong Kong’s CbCR e-filing portal in XML format, following OECD’s prescribed standards.
What Information is Included in a CbC Report?
The CbC report provides a detailed financial breakdown for each jurisdiction where the MNE Group operates. It includes:
- Revenue (Third-party and intercompany transactions)
- Profit (Loss) Before Tax
- Income Tax Paid and Accrued
- Number of Employees
- Capital and Tangible Assets (excluding cash and intangibles)
- Business Activities in Each Jurisdiction
Automatic Exchange of CbC Reports
Hong Kong’s IRD automatically exchanges CbC reports with tax authorities in jurisdictions that have entered into bilateral or multilateral agreements with Hong Kong. This is conducted under:
- The Convention on Mutual Administrative Assistance in Tax Matters (MAC)
- The Multilateral Competent Authority Agreement (MCAA)
If a parent entity is in a country without a CbC exchange agreement, its Hong Kong entity may need to file a local report to ensure compliance.
Penalties for Non-Compliance
Violation | Penalty |
Failure to file a CbC report | HKD 50,000 fine + HKD 500 per day for continued non-compliance |
Filing incorrect or misleading reports | HKD 100,000 fine |
Failure to maintain proper records | HKD 50,000 fine |
Key Takeaways
- CbCR applies to MNE Groups with annual revenue exceeding EUR 750 million (HKD 6.8 billion).
- Hong Kong entities must submit notifications within three months and CbC reports within 12 months after the fiscal year-end.
- Failure to comply with CbCR regulations results in financial penalties and potential criminal liability.
- Automatic exchange of CbC reports occurs with jurisdictions that have tax agreements with Hong Kong.
- Proper compliance ensures risk-free multinational operations and prevents tax disputes.
Conclusion
As tax authorities worldwide intensify scrutiny on global profit allocation, Hong Kong’s Country-by-Country Reporting (CbCR) framework plays a critical role in ensuring financial transparency. MNE Groups operating in Hong Kong must stay compliant with filing deadlines and maintain accurate records to avoid penalties and tax-related disputes.
