This undated photo shows a view of the Victoria Harbor in Hong Kong. (PHOTO / CHINA DAILY)

The Hong Kong Special Administrative Region government on Thursday launched a three-month consultation on the implementation details of the global minimum tax proposed by the Organization for Economic Co-operation and Development (OECD) to address base erosion and profit-shifting risks arising from the digitization of the economy (BEPS 2.0)

The government says it will aim to introduce legislative amendments into the Legislative Council in the second half of next year based on the outcome of the consultation.

As announced in the 2023-24 Budget, the administration will apply the global minimum effective tax rate of 15 percent on in-scope MNE groups starting from 2025 onwards whereas local small and medium-sized enterprises will not be affected

The OECD promulgated the BEPS 2.0 package in October 2021 to ensure multinational enterprise (MNE) groups with a consolidated annual revenue of at least 750 million euros ($821 million) pay a global minimum tax of at least 15 percent on income derived by their constituent entities in every jurisdiction where they operate.

READ MORE: Private sector sees more benefits from tax relief measures

The implementation of the global minimum tax will reduce the latitude for jurisdictions to introduce tax exemption or extremely low preferential tax rates as a means to enhance their tax competitiveness in future, thus creating a more level playing field in terms of taxation and avoiding competition over corporate income tax.

“To fulfil our obligation as a cooperative player in international tax cooperation and safeguard Hong Kong’s taxing rights, Hong Kong is fully committed to implementing Pillar Two of BEPS 2.0 in accordance with international consensus,” Secretary for Financial Services and the Treasury Christopher Hui Ching-yu said in a statement on Thursday.

Hong Kong joined more than 130 jurisdictions in committing to implementing BEPS 2.0 in 2021.

As announced in the 2023-24 Budget, the administration will apply the global minimum effective tax rate of 15 percent on in-scope MNE groups starting from 2025 onwards whereas local small and medium-sized enterprises will not be affected.  

The administration says it will apply the Hong Kong minimum top-up tax (HKMTT) to in-scope MNE groups starting from 2025 onwards, for preserving Hong Kong’s taxing rights with respect to such entities instead of ceding them to other jurisdictions, as well as reducing MNEs’ compliance burden.

 “It would be in Hong Kong’s best interest to implement the HKMTT to fulfil Hong Kong’s international tax commitment and preserve its taxing rights,” Hui said.

The government also says it will need to amend the Inland Revenue Ordinance (Cap. 112) to implement the global minimum tax and the HKMTT. 

READ MORE: Taxation system needs a revamp to reduce wealth inequality in HKSAR

“In formulating the legislative proposal, the government will strive to maintain Hong Kong’s tax competitiveness by upholding Hong Kong’s simple, certain and low tax regime. Insofar as the implementation of the global minimum tax and the HKMTT is concerned, emphasis is laid on minimizing tax compliance burden of in-scope MNE groups and maintaining the simplicity of the tax regime,” Hui added.