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Written by: Commentary Editing Room
2021-02-28 06:00
Last update date: 2021-02-28 06:00
In his budget speech a year ago, Financial Secretary Chen Maobo mentioned that he must beware of the challenge of the "lowest global tax rate" to Hong Kong.
I think the Secretary will immediately plan how to meet international regulations and enhance Hong Kong's business attractiveness.
Unexpectedly, a year later, the government has stagnated, and even more frankly waited for the Organization for Economic Cooperation and Development (OECD) to explain the details before taking action, which was far behind the situation.
When "simple and low tax" ceases to be the "signature", can Hong Kong develop other new advantages to maintain its international status?
(Profile picture)
The OECD and the Group of Twenty (G20) have launched international tax cooperation actions to combat tax avoidance in response to the tax challenges of "base erosion and profit shifting (BEPS)" and the digital economy.
At present, BEPS is generally called BEPS 2.0, and it mainly includes two pillars. One is to re-determine the taxation right, even if the business entity is not located in the place, it can also levy taxes on the profits of its specific business; the other is "the lowest global tax rate "That means multinational corporations have to pay the lowest level of taxes, otherwise their parent companies will be levied additional taxes by their tax jurisdiction.
The proposed system may threaten Hong Kong because Hong Kong's status as a global commercial and financial center is largely based on a simple and low tax system to attract domestic and foreign companies, and Hong Kong has always been listed as one of the international tax havens.
When the "Global Lowest Tax Rate" is implemented, its tax rate may be higher than the actual profits tax rate of local companies. If so, foreign companies will definitely reconsider whether Hong Kong is an ideal base.
The epidemic is more important than BEPS
Last year’s budget speech spent three paragraphs warning about the impact of BEPS 2.0, but what did the government actually do in the past year?
Chen Maobo only said that the relevant advisory group had started operations in the middle of last year and explained some major principles, such as ensuring that response measures would avoid affecting small and medium-sized enterprises as much as possible, maintaining a simple and clear tax system, reducing the burden of corporate compliance, and striving to improve the business environment and competitiveness Attract multinational companies to Hong Kong, etc.
These vague responses can't tell a specific strategy at all. It shows that the government is willing to take a passive role, or even takes a happy attitude towards the "lowest global tax rate", claiming that it will also make some positive contributions to taxation.
On the other hand, although the progress of the OECD discussions on BEPS matters was also hindered by the global new crown epidemic, the related work has never stopped. Later, as the epidemic caused the expansion of transnational science and technology agencies and the member countries fell into financial crisis, the organization was gradually accelerated, showing that the response to the epidemic And BEPS 2.0 can definitely go hand in hand.
The OECD released a blueprint report in October last year, advocating that the goal is to reach an agreement in the middle of this year, and the scope of coverage has expanded from technology companies to all consumer-oriented companies. By the end of January this year, the new U.S. Treasury Secretary Yellen stated his position against the previous government’s initiatives. Supporting the implementation of the "lowest global tax rate" is to remove major obstacles to subsequent negotiations.
In contrast, Chen Maobo, who deliberately distinguished between anti-epidemic and response to BEPS 2.0, clearly lags behind the international situation.
Chen Maobo believes that BEPS will also make a positive contribution to local taxation.
(Profile picture/Photo by Zhang Haowei)
Epidemic control and response to BEPS go hand in hand
Even though the OECD has not finalized the "lowest global tax rate", Bloomberg and other media have recently reported that the rate may be 13%.
If this news is true, this rate would appear to be lower than Hong Kong’s 16.5% nominal profits tax rate at a glance, which means that Hong Kong has met the OECD requirements. However, the OECD has repeatedly emphasized that the proposed mechanism is to calculate the effective tax rate, and the effective tax rate in Hong Kong is significantly lower 16.5%. For example, the OECD last year assessed that the effective tax for general companies in Hong Kong was 15.2%, and there are even case studies that can be as low as about 10%.
If Hong Kong wants to raise its tax rate to comply with the new system, Hong Kong's advantage of simple low tax rate will no longer exist.
Hong Kong is certainly likely to benefit from the new BEPS2.0 system, such as tax collection by multinational corporations on local businesses or following the "lowest global tax rate" arrangement to increase taxation and increase warehouse revenue. However, we have to consider other companies because of higher tax rates. Looking for other parties, the overall arrangement of the system is still unpredictable for Hong Kong. Chen Maobo's dream of overcharging taxes may come to nothing.
Finally, it must be pointed out that taxation is not the only winning factor for Hong Kong. "Viewpoint 01" has repeatedly pointed out that Hong Kong has the conditions to increase tax rates on a discretionary basis to open up financial resources and benefit society. However, there is a prerequisite for this move, which is that Hong Kong can maintain various economic and social competitiveness. For example, infrastructure investment, education and medical standards, industrial policies, business regulations, government efficiency, etc. must be ahead of their peers.
It is worrying that there is no economic direction in this year's Budget speech without specific policies.
It is not too late to make up for it. Chen Maobo must grasp the time of the next few months to show companies that Hong Kong is ready for the tremendous changes in the taxation system while improving the business environment.
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