- What is Country-by-Country Reporting
- Implementation in Hong Kong
- Notification and Return Filing
- Voluntary Filing Arrangement
- Automatic Exchange of Country-by-Country Reports
- Appropriate Use of Information in Country-by-Country Reports
- Trial Run of Country-by-Country Reporting Portal
- Materials on Country-by-Country Reporting
Country-by-Country (CbC) Reporting is a minimum standard formulated by the Organisation for Economic Co-operation and Development (OECD) under Action 13 of the Base Erosion and Profit Shifting (BEPS) Package.
Under this standard, a multinational enterprise group (MNE Group) is required to file a CbC Report in relation to an accounting period where:
- the consolidated group revenue for the preceding accounting period is at least EUR750 million (or HK$6.8 billion); and
- the group has constituent entities or operations in two or more jurisdictions.
The CbC Report requires aggregate tax jurisdiction-wide information relating to the global allocation of the income, the taxes paid, and certain indicators of the location of economic activity among tax jurisdictions in which the MNE Group operates. The Report also requires a listing of all the constituent entities for which financial information is reported, including the jurisdiction of incorporation of each of the constituent entities (if different from the tax jurisdiction of residence) and the main business activities carried out by that entity.
CbC Reports are to be exchanged automatically between tax administrations under relevant exchange arrangements.
The implementation framework for CbC reporting in Hong Kong is provided under the Inland Revenue (Amendment) (No. 6) Bill 2017 (the Bill). The Bill was published in the Gazette on 29 December 2017 and is subject to the scrutiny of the Legislative Council (LegCo).
The requirements for filing a CbC Return, which includes a CbC Report, only apply to a MNE Group whose annual consolidated group revenue reaches the specified threshold amount, i.e. HK$6.8 billion (Reportable Group).
In respect of a Reportable Group, the primary obligation of filing a CbC Return is on the ultimate parent entity (UPE) resident in Hong Kong (HK UPE) and not on any other constituent entities resident in Hong Kong (Hong Kong Entities). The HK UPE is required to file a CbC Return for each accounting period beginning on or after 1 January 2018. The HK UPE may also voluntarily file a CbC Return for an accounting period beginning between 1 January 2016 and 31 December 2017.
A Hong Kong Entity of a Reportable Group whose UPE is not resident in Hong Kong is subject to a secondary obligation of filing a CbC Return if any of the following conditions is met:
- the UPE is not required to file a CbC Report in its jurisdiction of tax residence;
- the jurisdiction has a current international agreement with Hong Kong providing for automatic exchange of tax information but, by the deadline for filing the CbC Return, there is no exchange arrangement in place between the jurisdiction and Hong Kong for CbC Reports;
- there has been a systemic failure to exchange CbC Reports by the jurisdiction, which has been notified to the Hong Kong Entity by the Commissioner.
Even if one of the above conditions is met, the Hong Kong Entity is not required to file a CbC Return if:
- a CbC Return for the relevant accounting period is filed by another Hong Kong Entity of the Reportable Group; or
- the Reportable Group has authorized a constituent entity as its surrogate parent entity (SPE) to file CbC Report on behalf of the Group, and the CbC Report is filed by the SPE in Hong Kong or a jurisdiction which has an exchange arrangement in place with Hong Kong.
Every Hong Kong Entity is required to make a notification containing information relevant for determining the obligation for filing a CbC Return within 3 months after the end of the relevant accounting period. For a Reportable Group with more than one Hong Kong Entity, a Hong Kong Entity is not required to make a notification provided that it is not the entity which is to file a CbC Return and another Hong Kong Entity has already made the notification. In practice, an assessor will give a filing notice to an entity which has made such notification or any other entity which is considered to be obliged to file a CbC Return.
The deadline for filing a CbC Return is 12 months after the end of the relevant accounting period or the date specified in the assessor’s notice, whichever is the earlier.
A service provider (SP) may be engaged to file a CbC Return or the related notification. Penalties are provided in respect of matters such as failing to file CbC Returns and providing misleading, false or inaccurate information in CbC Returns. Some of the penalty provisions will also apply to service providers.
To facilitate CbC reporting, the Department has developed the CbC Reporting Portal for Hong Kong Entities to:
- submit notifications of obligations to file CbC Returns;
- submit notifications of change of address;
- file CbC Returns; and
- receive or send messages in relation to CbC reporting.
A Hong Kong Entity should register a CbC Reporting Account under the CbC Reporting Portal for accessing the services provided thereunder. The person authorized to register a CbC Reporting Account for the entity has to possess an e-Cert (Organisational) with AEOI Functions for authentication purposes. More information about the application for e-Cert (Organisational) with AEOI Functions can be found in the website of the Hongkong Post Certification Authority.
If a SP or the person responsible for managing a non-corporate entity (PRM) is authorized to register and/or operate the CbC Reporting Account, the Department should be informed by a Notification of Details of Person Authorized to Register/Operate a CbC Reporting Account (Form IR1465). Please note that an authorized person of the SP or the PRM must also possess an e-Cert (Organisational) with AEOI Functions for authentication purposes.
A SP or PRM may act for more than one Hong Kong Entity to register / operate CbC Reporting Accounts and submit CbC Returns. Application for Lead Operator Reference Number (Form IR1466) may be made by the SP or PRM for the facility to access, as a lead operator, the CbC Reporting Accounts of relevant Hong Kong Entities through one single log-in.
A CbC Report (which forms part of a CbC Return) must be made in the form of an XML document. The reason for this is that XML documents can be validated and provide a common medium for exchange between the jurisdictions who have introduced CbC reporting requirements. In this regard, the Department has developed a data schema in XML which is based on the CbC XML Schema v1.0.1 issued by the OECD. The data schema specifies the data structure and format for filing CbC Report to the Department. Please click the following links to download the current version of the data schema and related user guide:
Some jurisdictions have introduced CbC reporting requirements for accounting periods beginning on or after 1 January 2016. Such a jurisdiction may require a constituent entity resident there to file a CbC Report if the constituent entity is part of a Reportable Group with the UPE resident in another jurisdiction that does not have a CbC reporting requirement for the same accounting period (Local CbC Filing). As Hong Kong will only implement CbC reporting for accounting periods beginning from 1 January 2018, constituent entities of a Reportable Group with HK UPE (HK Reportable Group) may be subject to Local CbC Filing for an accounting period beginning between 1 January 2016 and 31 December 2017 (Early Reporting Period). To mitigate the Local CbC Filing exposure of HK Reportable Groups, the Department is prepared to accommodate voluntary filing of CbC Reports for an Early Reporting Period.
Under the voluntary filing arrangement, the HK UPE of a HK Reportable Group will be allowed to file a CbC Return for an Early Reporting Period to the Department such that the CbC Report included therein can be exchanged with relevant jurisdictions. All the aforesaid requirements for CbC reporting will apply to the voluntary filing arrangement except the following:
- The HK UPE which intends to voluntarily file a CbC Return for an Early Reporting Period is not required to make a notification;
- The HK UPE or its SP/PRM may request a CbC Return for completion under the CbC Reporting Portal after registration of a CbC Reporting Account;
- For an Early Reporting Period beginning between 1 January 2016 and 31 March 2016, the deadline for filing a CbC Return is 31 March 2018;
- For an Early Reporting Period beginning between 1 April 2016 and 31 December 2017, the deadline for filing a CbC Return is 12 months after the end of the relevant accounting period.
A HK Reportable Group should take note that whether this voluntary filing arrangement can relieve its Local CbC Filing obligation in a jurisdiction would depend on the CbC reporting requirements of that jurisdiction.
The Multilateral Convention on Mutual Administrative Assistance in Tax Matters (the Multilateral Convention) will be the main platform for Hong Kong to exchange CbC Reports with other jurisdictions. To this end, the Government introduced the Inland Revenue (Amendment) (No. 5) Bill 2017 into the LegCo on 18 October 2017 seeking to, among others, empower the Chief Executive-in-Council to make an order for giving effect to the Multilateral Convention. The Multilateral Convention will apply to Hong Kong after the enactment of the legislation, the making of the order and the completion of relevant procedures with the Depositary of the Multilateral Convention.
Since the Multilateral Convention is at present not applicable in Hong Kong, bilateral arrangements for exchange of CbC Reports need to be made with jurisdictions having Comprehensive Avoidance of Double Taxation Agreements (CDTAs) with Hong Kong. So far, Hong Kong has made such bilateral arrangements with the following jurisdictions:
|Jurisdiction||CbC Report for First Exchange|
Meanwhile, the Government will continue discussions with other CDTA partners, seeking to conclude as many bilateral arrangements as practicable for the Early Reporting Periods.
The BEPS Action 13 Final Report sets out three permitted uses for the information in CbC Reports (CbCR information), namely:
- high level transfer pricing risk assessment;
- assessment of other BEPS-related risks; and
- economic and statistical analysis where appropriate.
The Department is committed to using CbCR information in accordance with the uses permitted in the BEPS Action 13 Final Report. The Department will not use CbCR information, by itself, to assess or reassess taxpayers' income for the purposes of the Inland Revenue Ordinance.
The Department will not use CbCR information as a substitute for a detailed transfer pricing analysis of individual transactions and prices based on a full functional analysis and a full comparability analysis. CbCR information on its own will not constitute conclusive evidence that transfer prices are or are not appropriate, and will not be used to propose transfer pricing adjustments based on a global formulary apportionment of income. Any breach of appropriate use of CbCR information will be disclosed as required under relevant exchange arrangements, and any inappropriate tax adjustment based on CbCR information will be conceded in any relevant competent authority proceeding.
However, the Department may use CbCR information in planning a tax audit or investigation, or as the basis for making further enquiries into the MNE Group’s transfer pricing arrangements or other tax matters, in the course of an audit. There is also no requirement that these enquiries must relate specifically to potential risks identified through the use of CbCR information. For example, CbCR information (such as the details of constituent entities) may be used as the basis for making enquiries into tax matters identified using other data sources or arising during the course of a tax audit or investigation.
The term "assessment of other BEPS-related risk" refers to the high level assessment of tax risks that may result in the erosion of a jurisdiction's tax base. In practice, while CbCR information may be used to identify indicators of possible tax risk, it will usually be possible to understand the arrangements giving rise to that risk after further enquiries have been conducted. In this regard, the Department will limit the use of CbCR information to risk assessment and making of enquiries in the course of a tax audit or investigation. The information will not be taken as conclusive evidence that a MNE Group is engaged in other forms of BEPS.
To enable Hong Kong Entities to better understand the operation of the CbC Reporting Portal, the Department is organizing a trial run of the functions provided under the CbC Reporting Portal. Hong Kong Entities are welcome to participate in the trial run. The trial run consists of two phases:
- Phase 1 – Account registration, submitting CbC Report for voluntary filing, and sending and receiving e-messages;
- Phase 2 – Notification of reporting entity and data preparation tool (tentatively in the latter half of 2018).
Before participating in the trial run, a Hong Kong Entity should:
- read carefully the Notes on the Trial Run;
- prepare the pre-requisite documents as mentioned in paragraph (B) of the Notes on the Trial Run; and
- complete an online form to enrol in the trial run.
Any enquiry regarding the trial run arrangements can be sent to email@example.com.
- Transfer Pricing Documentation and Country-by-Country Reporting - Action 13: 2015 Final Report
- Country-by-Country Reporting: Handbook on Effective Implementation
- Country-by-Country Reporting: Handbook on Effective Tax Risk Assessment
- Guidance on the Implementation of Country-by-Country Reporting
- Guidance on the Appropriate Use of Information contained in Country-by-Country Reports
If you have any question regarding CbC reporting, you may send your enquiry to the following e-mail address:
- General Enquiry : firstname.lastname@example.org
- Enquiry relating to XML Schema and User Guide : email@example.com