A small act of kindness causes a flurry of quiet laughter among staff at the Inland Revenue Centre. A taxpayer finds himself lost near the lobby of the relatively new 17-storey high building of the Inland Revenue Department (IRD) and unknowingly asks the Commissioner for help. Benjamin Chan doesn’t just tell him where to go but shows him, briskly walking him out of the lobby towards exactly where he needed to be.
The incident calls to mind what Chan says is undoubtedly his primary responsibility as the Commissioner of Inland Revenue. “It’s of course to improve the overall efficiency of the tax administration, which benefits Hong Kong as well as the tax paying public,” he says. This includes providing quality services to the public, collecting revenues in a cost effective manner, and promoting tax compliance.
He is also mindful of the IRD’s other important role as a business facilitator in the area of taxation. “This calls for the effective and pragmatic implementation of the tax initiatives developed by various policy bureaux. In recent years, the government has been very keen to develop various tax measures, including the introduction of preferential tax regimes for various industries, all with the aim to promote the whole economy. Throughout the development of these tax initiatives up to their implementation, the IRD has a crucial role to play,” says Chan. “When providing our technical input in the development stage, the most important thing is that a regime should be effective. We don’t want to introduce a regime that cannot be used by taxpayers. On the other hand, we need to maintain the integrity of the regimes.”
Chan stepped into the Commissioner’s role in October 2024. The past few months have been “very busy,” he admits, reflecting on a schedule packed with back-to-back meetings, business trips, and high-stakes tax initiatives.
Tax administration is only part of the job. What keeps him energized is seeing initiatives like BEPS 2.0 and enhancements to Hong Kong’s fund regimes, projects he was already grappling with in his previous role as the Deputy Commissioner (Technical), make headway. “ It’s been rewarding because some tax initiatives have already been implemented and some are in good progress. For example, we have achieved a number of key milestones in our e-filing projects and our digitalization efforts have made very good progress. Meanwhile, with BEPS 2.0, the Amendment Bill is close to completion.”
On 8 January, the Amendment Bill to implementing the global minimum tax initiative under Pillar Two of BEPS 2.0 was introduced into the Legislative Council for first reading. As at 22 April, the government will move the committee stage amendments to the Amendment Bill upon resumption of the second reading debate of the Bill.
Balancing global standards with local simplicity
Hong Kong has long prided itself on its simple, low-tax system – a magnet for businesses worldwide. But global initiatives that require Hong Kong’s participation, including BEPS 2.0, AEOI (Automatic Exchange of Information), and the forthcoming CARF (Crypto-Asset Reporting Framework), are testing that model.
Maintaining Hong Kong’s edge while meeting international standards is a key challenge faced by the IRD. “We need to uphold the competitive tax system of Hong Kong to provide a tax-friendly environment to businesses. But we also need to ensure that our tax system won’t be subject to abuse and its integrity is maintained. Both goals are very important.”
The introduction of a global minimum tax under BEPS 2.0, requiring large multinationals to pay at least a 15 percent effective tax rate in every jurisdiction, has generated mixed reactions. Given that the global minimum tax regime is extremely complex and multinational enterprises that are subject to the regime (in-scope MNEs) may need to pay top-up tax if their jurisdictional effective tax rate in Hong Kong cannot reach 15 percent, some consider that it could undermine Hong Kong’s simple and low-tax advantage to a certain extent.
Chan, however, is optimistic. “I cannot foresee any significant impact on our tax competitiveness because quite a number of large developed economies have already implemented the global minimum tax or their domestic minimum top-up tax from 2024 or 2025,” he says, citing jurisdictions including the EU-member states, the United Kingdom, Australia, Japan and Canada. “Even if Hong Kong doesn’t implement the rules, it won’t bring benefits to large MNEs. It will just cede Hong Kong’s taxing rights to other comparable jurisdictions which have already enacted the rules,” Chan asserts.
“We need to uphold the competitive tax system of Hong Kong to provide a tax-friendly environment to businesses. But we also need to ensure that our tax system won’t be subject to abuse and its integrity is maintained.”
He points out in-scope MNEs can’t escape the tax by relocating to non-compliant jurisdictions with BEPS 2.0’s backstop rule (also known as Undertaxed Profits Rule). For Chan, this levels the playing field, particularly against no or nominal tax jurisdictions. “In the past, some jurisdictions didn’t impose tax or just imposed tax at a nominal rate, and that was the major reason for MNEs to establish there. Now, those profits can be taxed elsewhere, so there’s less incentive for in-scope MNEs to set up or maintain the entities in those jurisdictions.”
This shift, Chan argues, positions Hong Kong as an attractive destination for businesses. “We just impose tax up to 15 percent, unlike many developed economies with higher rates,” he says. Coupled with Hong Kong’s company redomiciliation regime, Hong Kong could draw companies from low-tax jurisdictions, he adds. “It’s a very good opportunity for us to attract those entities to relocate to Hong Kong,” he enthuses, highlighting non-tax advantages such as the city’s financial infrastructure, as well as the robust economic and regulatory framework.
Chan describes Hong Kong’s BEPS 2.0 journey as “carefully planned and engagement-driven.” The groundwork began in 2020 with an advisory panel set up by the government consisting of academics, tax practitioners, and MNE representatives. “We all sat together to assess the impact. At that time, the design features weren’t settled – just the idea of a global minimum tax,” he recalls.
The design features of the proposed regime is a combination of constructive input from various stakeholders balanced against Organization for Economic Co-operation and Development (OECD)’s strict model rules. “For areas where the OECD rules allow domestic adaptation, we adopted stakeholder suggestions. But where the rules are fixed, we had to explain there’s no room to depart,” Chan says.
To support in-scope MNEs, the IRD has established a dedicated team to provide technical support and will issue detailed guidance on areas left open by the OECD for domestic consideration. “We’ll provide guidance to help taxpayers understand how we interpret those rules,” says Chan.
Transforming tax administration
Chan is also driving a digital revolution at the IRD. The push for e-filing of profits tax returns, requiring financial statements in the computer-readable inline eXtensible Business Reporting Language (iXBRL) format, was driven by a 2018 IT plan to upgrade the department’s IT infrastructure as well as OECD’s recommendation in the peer review of Hong Kong’s performance on handling exchange of information requests in 2019.
“The OECD advised us to issue more tax returns to taxpayers because currently not every company will file their tax returns annually,” Chan explains. “If another jurisdiction requests financial data and we don’t have it, it causes delays.” E-filing solves this by streamlining data collection for Hong Kong’s 1.4 million companies.
To pave the way for the implementation of full-scale mandatory e-filing of profits tax returns in 2030, the IRD launched voluntary e-filing in 2023, where all corporations and partnership businesses can e-file their profits tax returns together with financial statements and tax computations in iXBRL format. The first phase of mandatory e-filing will start with the in-scope MNEs entities from April 2026. The scope will then be expanded gradually to cover more companies and business groups.
Chan acknowledges the challenges for small- and medium-sized enterprises (SMEs), particularly as converting financial statements to iXBRL requires tagging data, a process that demands time and expertise. To support SMEs, the IRD offers free data conversion tools, training videos, webinars, and hands-on sessions. “We have developed iXBRL data conversion tools for use by SMEs free of charge,” Chan says, addressing the lack of commercial alternatives in Hong Kong. “We have also arranged online webinars and hands-on training to facilitate businesses to adapt to the change. Furthermore, a roll-over function is featured in the data preparation tools to enable migration of tags from the previous finalized data files to save re-tagging effort in subsequent years.”
This digital push isn’t just about compliance but also about efficiency, Chan emphasizes. “We would like to obtain more information in the electronic format to facilitate our assessment work and avoid the consumption of paper.”
The IRD is also launching three new dedicated portals under eTAX in July, namely Business Tax Portal (BTP), Individual Tax Portal and Tax Representative Portal, to enhance e-filing functions for businesses, individual taxpayers and tax representatives respectively. The BTP is a new electronic platform dedicated for businesses to handle tax and business affairs in a more convenient and efficient way.
A competitive future
Looking ahead, Chan sees technology as the key to optimizing Hong Kong’s tax system. “We’ve collected a vast amount of electronic data from country-by-country reports and Common Reporting Standard (CRS) data from the AEOI process, which are all financial account data from other jurisdictions. In the future, I think these types of data will allow us to perform tax profiling and identify cases with high risks or exceptions to carry out an audit.”
There are also possible areas where artificial intelligence (AI) could facilitate the IRD’s tax audit work, says Chan. For example, in examining tax returns, drafting query letters, drafting replies to taxpayers’ enquiries, or forecasting tax revenue. But hurdles are hard to ignore: cost, training, and data security. “We would need to develop our own AI tool to avoid security risks on taxpayers’ data,” he says. “However, use of AI solutions for improving efficiency should be the upcoming trend and there is no exception to tax administration.”
Expanding double taxation agreements (DTAs) for Hong Kong – currently at 51, with 17 more in negotiation – is another goal. “We will do more to expand our treaty network and continue assisting policy bureaux to develop preferential tax regimes for a range of industries,” he says.
Chan, a Hong Kong Institute of CPAs member, says CPAs play a pivotal role in further enhancing Hong Kong’s tax system, particularly in offering technical input and explaining rules to clients. “CPAs who are tax advisors have a very solid understanding of their clients’ operations and have developed a mutually collaborative relationship. This puts those advisors in a good position to adequately explain the tax laws to the taxpayers, encourage them to self-comply and make use of our voluntary disclosure programmes after irregularities in the taxpayers’ books or accounts are identified,” he says.
How to be well-rounded
With the international tax landscape changing rapidly, Chan sees capacity building for IRD officers as a priority and a challenge. “The OECD has launched many initiatives and a number of them have been implemented in Hong Kong. Our officers need to stay ahead of all these changes to ensure that they have the knowledge to carry their duties effectively,” he says. Training courses, OECD seminars, and job rotations ensure versatility. Chan explains that every few years, officers switch roles across different specialties within the department, ranging from profits tax to field audits to technical research, just to name a few. “Every aspect of taxation is very unique. So this job rotation enriches their expertise and makes the job more interesting.”
On this note, Chan’s advice for young CPAs eyeing careers in tax, is to seek diverse roles within taxation if the opportunity comes up. “If you can handle every aspect, it puts you at a great advantage,” he says. Chan also urges them to master the fundamentals, and not just memorize the laws. “Understand the rationale behind them,” he says. “As potential tax advisors, it’s important to understand how to interpret the rules or how to apply them, facilitating the client’s compliance.”
“Working in the field audit and investigation section, I needed to negotiate a good deal for the department.
Now, as the head of Hong Kong’s delegation in treaty negotiations, I need to negotiate a good deal for the Hong Kong SAR.”
Working in different units in the IRD since joining the tax administrator in 1998 has laid a strong foundation for Chan, preparing him for his current role. And so did his journey to becoming a CPA. “It gave me solid tax and accounting knowledge,” he reflects. Auditing MNEs’ complex financial statements during his field audit stint relied heavily on that expertise.
The soft skills he developed throughout his CPA training has also proved vital, especially now as he leads double taxation agreement talks. “Working in the field audit and investigation section, I needed to negotiate a good deal for the department. Now, as the head of Hong Kong’s delegation in treaty negotiations, I need to negotiate a good deal for the Hong Kong SAR,” he says.
Negotiating a reduced tax rate that benefits business for both jurisdictions can be especially complex with a high tax jurisdiction, Chan notes. “Convincing the other side that a double tax agreement can promote the economic relationship between two jurisdictions so that lower rates can be agreed upon is indeed a skill, and I was able to obtain that skill through my training as a CPA.”
51 DTAs SIGNED
Hong Kong has now signed DTAs with 51 jurisdictions, with 17 more in negotiation. Expanding Hong Kong’s tax treaty network is a goal for the government.
