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To attract multinational corporations to establish corporate t reasur y centers (CTCs) in Hong Kong, including facilitating the dr ive of mainland China enterpr ises to go global under the "One Belt One Road" initiative,1 the Financial Secretary of Hong Kong announced in his 2015-2016 Budget that the government would amend the Inland Revenue Ordinance (IRO) to al low a deduct ion for interest paid to overseas associated corporations and provide an 8.25% concessionary tax rate for qualifying profits of qualify ing CTCs.
The legislative bill (Bill) implementing the proposal was published in the Official Gazette on December 4, 2015, and presented to the Legislative Council for first reading on December 16, 2015. Subject to the passage of the Bill by the Legislative Council, the proposed interest deduction rules and concessionary tax rate for qual ifying profits of a qualifying CTC will apply to sums payable, received, or accrued on or after April 1, 2016. Key provisions of the Bill are summarized below.
Interest deduction for CTCs. Under a new section to be introduced into the IRO, any corporation that carries on, in Hong Kong, the business of borrowing money from and lending money to its associated corporations can claim a tax deduction for interest paid to a non-Hong Kong associated corporation, if all of the following conditions are satisfied: (1) the money must be borrowed in the ordinary course of the int ragroup financing business of the corporation; (2) the...