According a proposal from high level government advisory panel, Hong Kong adopts a new intragroup tax loss transfer regime. If adopted, these new tax rules would have significant impact on business and investment decision-making in Hong Kong, especially in the context of large corporate groups.

In Hong Kong, unlike most other developed tax jurisdictions, tax losses cannot be transferred amongst group companies via a group tax loss relief system. Losses incurred by a company can be carried forward to offset against its own future profits until the losses are fully utilised, but they cannot be transferred to other profitable companies within the group. The absence of group tax loss relief potentially creates tax inefficiencies and distortions.

The key features of the group tax loss relief rules would be – companies within a wholly owned group should be able to offset tax losses via a tax loss grouping / transfer system. The companies within the wholly owned group need to have the same accounting year. For the tax losses to be grouped and offset, the tax losses must arise at the time the companies are in the same wholly owned group.

Where a company within a wholly owned group does not elect to transfer the tax losses for offset, or has excess tax losses, they are -5- retained by the company and are treated in the same manner under the ordinary tax loss rules (i.e. tax loss carry forward). Where the company transferring the tax losses (“Loss Company”) is subject to tax at a lower rate than the company receiving the tax losses, the tax losses will need to be adjusted to reflect the tax benefit of those tax losses to the Loss Company.