If a company is considered to be a resident of Hong Kong and another jurisdiction simultaneously, the tie-breaker rules under the relevant tax treaty would need to be considered to determine the jurisdiction where a company is regarded as a resident for the purposes of the treaty. In assessing the company’s residence status, the IRD will take into account all relevant facts and circumstances. The IRD does not consider that such a temporary change during extraordinary time would in itself alter the tax residence status of a company. Restrictions on international travel due to the pandemic may give rise to a change in the locations where senior management hold their meetings or conduct the business of an enterprise and concerns have been raised about the effect of such change on the tax residence of a company. The treatment for each case will be determined on its own facts and circumstances. It has to be stressed that the views expressed below are for general information only. These Guidances should be read together with the Commentary on the Model Tax Convention on Income and on Capital (MTC) and OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. It will be noted that the IRD’s approach in relation to the tax issues is generally in line with the Updated Guidance on Tax Treaties and the Impact of the COVID-19 Pandemic (the COVID-19 Tax Treaty Guidance) and Guidance on the Transfer Pricing Implications of the COVID-19 Pandemic (the COVID-19 Transfer Pricing Guidance) released by the Organisation for Economic Co-operation and Development (OECD) in January 2021 and December 2020 respectively, to which further references may be made. The Inland Revenue Department (IRD)’s general approach to these issues is set out below.
Such changes also give rise to certain tax issues, including those relating to tax residence of companies and individuals, permanent establishment (PE), employment income of cross-border employees and transfer pricing. The COVID-19 pandemic has caused significant disruptions to people’s lives, resulting in changes to the ways in which businesses operate and the locations where people work.