The Inland Revenue Department on 22 December 2016 published on its website an announcement on country-by-country (CbC) reporting.

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 jurisdiction of tax residence) and the main business activities carried out by that entity.

CbC reports are to be exchanged automatically between tax administrations under qualifying competent authority agreements (QCAAs). The CbC report is required to be filed by the ultimate parent entity in its jurisdiction of tax residence.

Where the ultimate parent entity is resident in a tax jurisdiction which neither requires the filing of CbC reports nor has a QCAA in place with another tax jurisdiction, the group’s constituent entity in that other tax jurisdiction may be required to file the CbC report locally. In such circumstances, the group may authorize a constituent entity as its sole surrogate to file the CbC report in its jurisdiction of tax residence which will then exchange the report with that other tax jurisdiction. CbC reports are required to be filed within 12 months after the end of the relevant accounting period.

The Government’s consultation to gauge views on implementation of measures by the OECD to counter BEPS started on 26 October 2016 and will end on 31 December 2016. Subject to necessary legislative amendments, MNE Groups will be required to file CbC reports in Hong Kong for the accounting periods commencing on or after 1 January 2018.

Some tax jurisdictions have introduced CbC reporting since the accounting period commencing on 1 January 2016. To facilitate MNE Groups of which the ultimate parent entities are tax residents in Hong Kong (Hong Kong MNE Groups) to fulfil their CbC reporting obligations in those jurisdictions, the Department is prepared to accommodate parent surrogate filing as a transitional arrangement.

Under this transitional arrangement, a Hong Kong MNE Group will be allowed to file its CbC reports for the accounting periods commencing between 1 January 2016 and 31 December 2017 to the Department for exchange with other tax jurisdictions.

Hong Kong MNE Groups should take note that the transitional arrangement may not relieve their obligations in all jurisdictions since local filing requirements could vary in different jurisdictions.