Hong Kong aims to codify transfer pricing principles

12 Jan 2018

On 29 December 2017, the Hong Kong government published a draft Bill which proposes to codify transfer pricing principles into the territory’s tax law.

The Bill (Inland Revenue (Amendment) (No. 6) Bill 2017) aims to apply the transfer pricing rules to both domestic and cross-border transactions, and enhance clarity and certainty of the arm’s length principle, as well as strengthen the Advance Pricing Arrangement (APA) regime.

The Bill also sets out mandatory requirements on transfer pricing documentation with certain exemptions to minimise the compliance burden on businesses and introduces penalties for filing tax returns with incorrect information on transfer pricing.

The draft Bill, which is more detailed than expected, also includes new regulations relating to the OECD’s BEPS Actions, in particular laying out thresholds in line with the project’s Permanent Establishment Status (Action 7). The implementation of these rules – a top priority according to the government - will mean that Hong Kong adheres to the full scope of Action 7 standards, and by adopting these, the government will ensure that it is consistent with the latest requirements of the OECD and the European Union on fair taxation.

The Bill was expected to be introduced into the Legislative Council on 10 January, 2018.