The IRD issued DIPN 52 - Taxation of corporate treasury activity on 9 September 2016. The DIPN set out the IRD’s views on the interpretation and application of the tax regime for qualifying corporate treasury centres (QCTCs), the new deeming provisions on interest income arising through or from an intra-group financing business and the new deduction rules for interest expenses incurred in the course of an intra-group financing business.
While the QCTC tax regime will put Hong Kong in a competitive position as a location for multinational corporations to set up or relocate their group treasury functions, considerable practical complexities and detailed rules will need to be observed for enjoying the concessionary tax rate. In making a decision on setting up or relocating its corporate treasury functions, a multinational corporation needs to fully understand the operational details of the Hong Kong QCTC tax regime and assess how such regime compares with the similar tax regimes of other locations in the region, thoroughly review the business needs that a group treasury centre is expected to serve, and compare the pros and cons of different locations in Asia for setting up such a centre in terms of non-tax factors. It is also important to ensure that there is proper transfer pricing for corporate treasury transactions entered into between associated corporations.