June 29 2020
On 12 June 2020, the Inland Revenue Department has updated the Departmental Interpretation and Practice Notes No.42 clarifying the taxation on financial instruments and foreign exchange differences. The main content of the DIPN No.42 (revised) is summarized as follows:
- an overview of the tax treatment of gains or losses in respect of financial instruments to which Hong Kong Financial Reporting Standard 9 Financial Instruments applies;
- an introduction of accounting treatment of financial instruments;
- realization basis and fair value basis for profits tax assessment on the taxable profits from financial instruments;
- conditions for adopting fair value basis and assessment measures;
- the accounting treatment of foreign currency transactions carried out in Hong Kong; and
- tax treatment of unrealized exchange differences.