150205 TTN International Tax JT · February 2015. An overview of key international tax developments and structuring ... Widespread acceptance among APAC countries that Addressing

International Tax

A Hong Kong perspective on keyA Hong Kong perspective on key international tax developments in the Asia Pacific region

February 2015

An overview of key international tax developments and structuring considerations

Understanding the challenges of today’s tax environment

Theory vs practice

International considerationsInternational considerations

© 2014 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

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Agenda

Key tax developments

Asia Pacific Base Erosion and Profit Shifting (“BEPS”) overview

Tax information sharing Tax information sharing

The transfer pricing landscape

International structuring from a Hong Kong perspective

Key features of the Hong Kong tax system

Challenges to Hong Kong’s attractive tax regime

Future proofingp g

Case study – BEPs motivated restructure

Q&A section


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OECD B E i d P fit Shifti (“BEPS”) OECD Base Erosion and Profit Shifting (“BEPS”)

• The Study Group on Asian Tax Administration and Research (SGATAR)( )

• Task force to support taxation regionally

• Increased collaboration among tax administrations


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APAC BEPS overview

No engagement on BEPS

• Brunei• Cambodia

Generally follow international tax

trends – restrained by domestic capabilities

• Malaysia• Mongolia

Partial involvement and interest – may

adopt some measures

• Thailand• Singapore

Involvement and interest – voluntary adoption of many

guidelines

• G20 countries -• China

100% involvement and adoption

• OECD countries -• Australia

• Myanmar• Papua New Guinea• Sri Lanka• Macau• Laos

• Taiwan• Vietnam• Fiji

• Hong Kong• Pakistan

• Indonesia• India

• Japan• Korea• New Zealand

BEPS Action Plan: Which items will succeed in APAC?

Hybrid mismatch tax planning Widespread acceptance among APAC countries that

Transfer pricing of intangibles Clarify the definition of intangibles, and provide guidance on

identifying intangible transactions

Addressing the digital economy Widespread acceptance among APAC countries that should be curtailed

Preventing treaty abuse Introduction of limitation of benefits clauses, minimum

shareholding periods or cancelling treaties

Addressing the digital economy Unlikely significant global reforms in this area will proceed

given the complexity and lack of consensus internationally

Transfer pricing documentation Common template for country-by-country reporting of

Counter harmful tax practices more effectively How to improve transparency through compulsory

spontaneous exchange on rulings related to preferential regimes

income, earnings, taxes paid and certain measures of economic activity

Develop a multilateral instrument Countries to implement BEPS measures without having to

renegotiate each of their existing bilateral tax treaties


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renegotiate each of their existing bilateral tax treaties

Tax information exchange

Exchange of Information

• Information upon request

S f f• Scope of information

• Can be administratively cumbersome for tax authorities

Common reporting standard Common reporting standard

• Game changer – standardised, cost effective model

• Potentially facilitated through financial intermediariesPotentially facilitated through financial intermediaries


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The transfer pricing landscape – key regional trends

Increased regulation (retrospective application – India, Australia)

Increased enforcement

Tax authorities in the region are becoming increasingly sophisticated –Australia is proactive in regional education

Divergent views across the region in relation to marketing intangibles Divergent views across the region in relation to marketing intangibles, location savings and market premiums

Establishment of Advance Pricing Agreement (APA) programs

• India

• Hong Kong

• Vietnam


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Key features of the Hong Kong tax system

Non DTA Countries

•Dividends: 0% WHT•Royalties: 4.95% WHT (IPRs used in HK)

• Interest: 0% WHT

Hong Kong CompanyReturns from Investments The DTA Network

•16.5% Corporate Tax•Taxation of revenue profits based on territoriality

•No tax on capital gains

•Dividends fully exempt• Interest is taxed based on source (DIPN 13)

•Capital gains are exempt

•28 effective DTAs, primarily with Asia and the EU

•Particularly beneficial treaties with China, •No tax on capital gains

•DIPN 21 on Locality of Profits

•DIPN 13 Taxation of Interest

•Capital gains are exemptIndonesia and Japan

•Good treaties for accessing Europe (Luxembourg, UK) and Canada


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•No VAT•Stamp duty

Challenges to Hong Kong’s attractive tax regime

Practical difficulties in obtaining tax treaty relief – what does this mean for passive income companies (i.e. holding companies, IP companies etc.)

Ulti t l hift t d li t f h ldi ith b i Ultimately a shift towards alignment of holding company with business operations

BEPS – should start considering the implicationsg p

Tax information exchange – reduced privacy of financial information

Transfer pricing in the spotlight

“What has worked in the past may not work now”


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Future proofing

Understand and assess the extent of tax risk

Is the level of tax risk acceptable from a business perspective?

Restructuring

Transfer pricing can be the solution and the problem

Understand the tax and transaction costs of addressing the problem


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Case study – BEPS motivated restructure


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C t St t

IP Holding Co Brand owner

Current Structure

(BVI) Brand owner

License unrestricted right to use and modify IP

Brand License Co(NL)

Brand licensing intermediary

Charges for the use of the IP

Operating Companies

Local operating companies


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R t tIP Holding Co

(BVI)Previous brand

owner

Restructure

Transfer IP

NEW IP Holding Co

(BVI)

Transfer IP

New brand owner

Brand licensing intermediary entityBrand License Co

(HK)

License unrestricted right to use and modify IP for a nominal fee

intermediary entity (economic owner)

Charges for the use of the IP

(HK)

Operating Companies

Local operating companies


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Q&A section

Thank you

Presentation by John Timpany

Contact Details:

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Fax: +852 2845 2588

[email protected]


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Documents

150205 TTN International Tax JT · February 2015. An overview of key international tax developments and structuring ... Widespread acceptance among APAC countries that Addressing