The representatives of 67 jurisdictions (including Mainland China, which also represented Hong Kong) attended the signing ceremony for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the Convention) or the Multilateral Instrument (MLI) in Paris on 7 June 2017. After the signing ceremony, the provisional ‘MLI position’ for each signatory has been published on the website of the Organisation for Economic Cooperation and Development (OECD).
In implementing the MLI, Hong Kong has taken a pragmatic approach by (1) opting in of the provisions of the Convention that represent the minimum standards (e.g. the principal purpose test (PPT) for preventing treaty abuse and the requirement for allowing a minimum three-year period for a person to present its case for Mutual Agreement Procedure (MAP)) and (2) opting out of the other provisions that are not mandatory (e.g. provisions addressing hybrid mismatches and artificial avoidance of permanent establishment (PE)).
However, it should be noted that the MLI position of Hong Kong (and each signatory) currently available on the OECD’s website is only provisional and may still be subject to change before ratification. In addition, the final impact of the MLI on a particular double tax agreement (DTA) of Hong Kong may depend on not only the MLI position of Hong Kong but also the MLI position of the other contracting jurisdiction of that DTA.
Hong Kong companies having cross-border transactions or investments should revisit their existing or potential business structures/operations in Hong Kong, taking into account not only the MLI position adopted by Hong Kong but also those adopted by Hong Kong’s tax treaty partners.