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Hong Kong

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Hong Kong Report Published Recommending Introduction of Group Loss Relief

The Hong Kong Government has announced the release of a report from the Financial Services Development Council that proposes the introduction a group tax loss transfer regime in Hong Kong that would allow for unutilized tax losses of a group company to be transferred and set off against the taxable income of another company within the same corporate group. The key features of the loss transfer regime proposed in the report include:

  • Companies within a wholly owned group (including Hong Kong branches of wholly owned group companies) 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 the loss company is subject to tax at a lower rate than the profit company, the tax losses transferred would be adjusted to reflect the tax benefit of those tax losses to the loss company (adjustment approach preferred over alternate ring fencing approach);
  • Specific anti-abuse measures may need to be implemented to counteract tax-avoidance arrangements effected to take advantage of group tax losses that were incurred prior to the implementation of group tax loss relief;
  • Where a company within a wholly owned group does not elect to transfer the tax losses for offset, or has excess tax losses, the losses would be retained by the company and treated in the same manner under the ordinary tax loss rules (i.e., tax loss carry forward); and
  • The company would continue to account for taxable income and deductible losses in the ordinary manner (i.e., there would be no tax consolidation).

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