Global Minimum Corporate Tax, a $1.28 Billion Gift to Hong Kong
Commissioner of Inland Revenue Tam Tai-pang told a Legislative Council financial affairs panel meeting earlier in the week that the implementation of the new 15% global minimum tax for large multinational companies could increase tax revenues by HK$10 billion (US$1.28 billion).
This global minimum tax, known as the Base Erosion and Profit Shifting 2.0 (“BEPS 2.0”), is designed to prevent competition on lowering corporate income tax by putting a floor on the tax, and was agreed to by almost 140 countries in a landmark deal in 2021. It is applicable only to large multinational corporations with annual revenue of at least €750 million (US$820.38 million).
While the new rule will be irrelevant for most Hong Kong companies, particularly small and medium-sized enterprises, there are several hundred large multinational companies in the city that will be affected.
Some lawmakers have voiced concerns that the new tax rule might push international firms to move out of Hong Kong, but the tax chief played down those worries saying that many jurisdictions have pledged to implement the tax, including all major economies such as the European Union countries, UK and Singapore.
“Even if companies move away from Hong Kong to other markets, they will face the same tax issues,” Tam explained. He goes on to further elaborate that the new tax arrangement, by levelling the playing field, could attract businesses to relocate from former tax havens to Hong Kong depending on how those jurisdictions end up changing their tax laws.
Tax, although an important issue, is not the sole deciding factor for the location of businesses, Hong Kong being the global financial and trade hub for the largest economy and trading nation in the world, has the unique assets that other tax havens lack.
A consultation paper regarding the implementation of the new tax regime was released by the government in December and is due on 20 March. The new rule is expected to be implemented in 2025.
