The Zhitong Finance App learned that the Hong Kong Financial Services and Treasury Bureau and the Hong Kong Inland Revenue Department sought public comments last month on innovating the Corporate Treasury Centre (CTC) tax incentive system. The consultation period will end on the 4th of next month. PricewaterhouseCoopers said it supports the Hong Kong Special Administrative Region in enhancing its function as a major corporate treasury center, and believes it will help strengthen its status as an international financial center.
He Runheng, PricewaterhouseCoopers's Southern China Tax Management Partner and Asia Pacific Financial Services Tax Supervising Partner, pointed out that the biggest highlight of this proposal is the introduction of a two-tier arrangement, which allows companies to flexibly select the most suitable tier according to their business strategies and operational needs. He emphasized that the second tier is particularly attractive, providing additional tax benefits and greater flexibility for pre-approved eligible corporate treasury centers and their associated corporations, including a 5-year concession period which can be renewed thereafter, providing higher tax certainty in the early stages through a pre-review mechanism, and allowing pre-approved eligible corporate treasury centers to be exempted from the “independent corporation conditions” and “safe harbor rules”. Businesses can enjoy the benefits without setting up a new company as a treasury center.
Furthermore, the consultation paper suggests relaxing the interest tax deduction conditions for pre-approved eligible corporate treasury centers. Even if non-Hong Kong linked lenders receiving interest from corporate treasury centers do not pay local taxes due to losses or other reasons, corporate treasury centers can deduct taxes on their interest expenses to respond to the pain points that the market is most concerned about.
Regarding the situation where pre-approved Hong Kong associated corporations will enjoy 50% tax exemption on interest income collected from treasury centers, PwC believes that this benefit will encourage Hong Kong affiliated companies to deposit funds in treasury centers and further enhance Hong Kong's appeal to multinational enterprises in the Asian region.
According to PricewaterhouseCoopers, a corporate treasury center is essentially a “bank” within a group, undertaking core functions such as centralized fund management, financing and risk management. For multinational enterprise groups with the scale of cross-border business, frequent capital transfers, and the need to manage the group's liquidity, foreign exchange and interest rate risks in an integrated manner, the relevant optimization measures are likely to be particularly attractive. In the long run, optimizing relevant tax incentives will not only help enhance the intention of such enterprises to set up treasury centers in Hong Kong, but also inject new momentum into the HKSAR's mature and diverse financial ecosystem, further consolidating the competitive advantage of the HKSAR as a two-way platform for “bringing in and going global”.