Hong Kong’s Inland Revenue Department today published new frequently asked questions (FAQs) related to the filing thresholds for country-by-country (CBC) reporting of multinational group tax information.
The questions and answers are as follows:
Q: If the total consolidated group revenue of an MNE group exceeds the specified threshold (i.e. HK$6.8 billion or EUR750 million (or its equivalent)) for the preceding accounting period, but falls below the specified threshold for the current accounting period, is it necessary to file a CbC report for the current accounting period?
A: The MNE group is required to file a CbC return for the current accounting period as the requirement to file CbC return is based on whether the group’s total consolidated group revenue exceeded the specified threshold amount for the preceding accounting period.
Q: For the purposes of determining whether the total consolidated group revenue of an MNE group for the preceding accounting period exceeds the specified threshold, should extraordinary income and gains from investment activities be included in the consolidated group revenue?
A: In determining whether the total consolidated group revenue of an MNE Group exceeds the specified threshold amount, all of the revenue that is (or would be) reflected in the consolidated financial statements should be taken into account. Extraordinary income and gains from investment activities should be considered if those items are presented in the consolidated financial statements under applicable accounting rules.
Q: For the purposes of determining whether the total consolidated group revenue of an MNE group for the preceding accounting period exceeds the specified threshold, should the share of results of associated companies, joint ventures or partnership be included in the consolidated group revenue?
A: It is not uncommon that an MNE group has some entities which the group does not exercise direct or indirect control. This may arise where the group jointly controls the entities with other investors (e.g. joint ventures), or where the group only controls between 20% and 50% of the entities’ interest and there is no joint control (e.g. associates).
Depending on the applicable accounting rules, such an entity may not be required to be consolidated into the group’s financial statements. Instead, only the group’s share of profit or loss in the entity will be included in a single line item of the group’s consolidated income statement. For the purpose of applying the specified threshold amount, the share of profits so accounted for would not form part of the consolidated group revenue.
However, if the applicable accounting rules require consolidation or pro rata consolidation of the entity into the group’s consolidated financial statements, the full amount or a pro rata share of the entity’s total revenue (as the case may be) should be taken into account for the purpose of applying the specified threshold amount.
Q: If the preceding accounting period of a reportable group is shorter than 12 months, how should it be determined whether the total consolidated group revenue of an MNE group for that accounting period exceeds the specified threshold?
A: The MNE group should first compute the pro rata share of the specified threshold amount that would correspond to the short accounting period. Such amount will then be compared with the group’s total consolidated group revenue to determine whether the specified threshold amount is exceeded.
Be the first to comment