The IRD’s guidance on certain tax issues arising fro…
For over 18 months, the Covid-19 pandemic has resulted in international travel restrictions being imposed by governments globally. The IRD Guidance should be welcomed by many businesses as it provides a degree of reassurance for taxpayers that may have employees temporarily stranded overseas a result of these restrictions.
Whilst it is good to see the IRD generally following the OECD’s views, the guidance does not cover situations where potential tax liabilities may arise under domestic tax law due to a change in which businesses are being forced to operate or are managed or controlled during the pandemic. This is particularly relevant for cross-border workers who, habitually travel overseas to perform services or conclude contracts on behalf of their employers, are now being forced to work in Hong Kong because of the travel restrictions. This is a situation commonly faced by many businesses during this period and such taxpayers may have treated part or all of their profits as offshore sourced and non-taxable. Given Hong Kong’s territorial system of taxation, the territorial concept fundamentally requires taxpayers to determine the location where the profits are derived and profits which have an offshore source are generally not taxed in Hong Kong. Taxpayers with an offshore profits claim may therefore find themselves in a predicament and risk such profits being challenged and regarded as Hong Kong sourced as a result of their employees performing profit generating activities in Hong Kong during the pandemic. Further clarification from the IRD would be welcomed in this regard.
Nevertheless, the IRD Guidance should provide a degree of reassurance for taxpayers in determining their tax positions during the pandemic – if they can apply a double tax agreement. If a double tax agreement cannot apply, the guidance is only helpful in that it confirms that no concession or relaxation will be accepted by IRD.
Despite the guidance, employers who have employees that are temporarily dislocated should continue to monitor their circumstances and the government travel rules regulations closely to assess whether if it is really a temporarily dislocation as a result of Covid-19 or a matter of choice. In particular, care should be taken that this guidance given by the IRD only applies to the interpretation of tax treaties and the application of transfer pricing principles. The guidance does not apply to interpretation of domestic law and does not apply if the dislocation of the employee is by choice, rather than being imposed by restrictions arising from external factors. Taxpayers should tread with caution and work closely with their tax advisors to carefully assess their tax positions during the pandemic.
Source : https://kpmg.com/cn/en/home/insights/2021/08/tax-alert-8-hk-the-ird-guidance.html
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Date : 2023-01-30 07:47:38
