Thank you, Deputy President. I speak in support of the passage of the Inland Revenue (Amendment) (Minimum Tax for Multinational Enterprise Groups) Bill 2024. In order to address the issue of base erosion and profit shifting (“BEPS”) arising from the digitization of the economy, the Government has introduced the Bill to implement Pillar Two of the BEPS 2.0 package promulgated by the Organisation for Economic Co-operation and Development (“OECD”), under which multinational enterprise (“MNE”) groups with annual revenue of €750 million are required to pay a global minimum tax of at least 15%. If the effective tax rate of the enterprises concerned is below this level, Hong Kong will impose a top-up tax to protect its taxing rights.
Since July 2021, Hong Kong has joined more than 130 jurisdictions around the world to implement the two-pillar solution promulgated by OECD. In order to reinforce Hong Kong’s position as an international financial centre, it is essential for Hong Kong to fulfil its international obligations and tackle cross-border tax evasion by amending the legislation, so as to boost the confidence of international investors. In addition, the Bill will protect the integrity of the local tax base and bring additional financial revenue for the Treasury. Hong Kong’s existing tax regime is based on the territorial source principle and foreign-sourced income is exempt from profits tax, while there is no capital gains tax and dividend tax. However, the Bill ensures that Hong Kong enjoys the taxing rights as it has the priority to collect a top-up tax of up to 15% in respect of the profits MNEs derived from Hong Kong.
The Administration has estimated that after the implementation of the minimum top-up tax, it will bring an additional tax revenue of about $15 billion per year for the Treasury from 2027-2028 onwards, thus alleviating the Government’s financial pressure. If Hong Kong does not enact the legislation in a timely manner and take the initiative to impose the top-up tax, other jurisdictions will collect tax in respect of the profits derived by MNEs from Hong Kong under the Income Inclusion Rule or the Undertaxed Profits Rule. Hong Kong’s taxing rights will thus be ceded to other jurisdictions and lead to a loss of tax revenue, which will in effect deprive Hong Kong’s taxing rights.
On the other hand, Hong Kong has all long been practising a simple and low tax regime, coupled with the advantages such as a well-established legal system, excellent infrastructure and talent pool, it has attracted many large MNEs to establish presence in Hong Kong. Some people may worry that the implementation of the global minimum tax will undermine the attractiveness of Hong Kong’s low tax regime, but the situation is actually quite opposite. Following the implementation of the BEPS 2.0 package in more than 130 jurisdictions around the world, jurisdictions which used to attract enterprises with low tax rates can no longer rely on low tax rates and tax policies to attract enterprises to set up presence. Under the new taxation environment, Hong Kong’s competitive edge and attractiveness in terms of the business environment will become all the more prominent. Hong Kong enjoys the unique advantage of “one country, two systems” and unparalleled core competitiveness. Coupled with its status as an international financial centre, Hong Kong will become a premier destination for MNEs to establish local presence.
Amid the wave of global tax reform, there is a greater need for Hong Kong, as an international financial hub, to take a step forward and align its tax regime with the international community, proactively assume control over its taxing rights, prevent MNEs from evading tax through tax havens, and build a stable financial base. For business operators, Hong Kong has unique advantages in many aspects, but at the same time, our global competitors will not stop moving forward and will continue to regard Hong Kong as the most important competitor. Hong Kong must strive for endless improvement and keep on reviewing the business costs in various aspects, such as compliance requirements, government policies, application procedures and reply efficiency. Only in this way can we enhance Hong Kong’s status as an international financial centre.
With these remarks, Deputy President, I support the Bill.