By Agnes Lo, Associate Professor, Lingnan University, Hong Kong & Raymond Wong, Associate Dean, City University of Hong Kong
The Hong Kong Inland Revenue Department (IRD) on 19 July published Departmental Interpretation and Practice Notes (DIPNs) Nos. 58, 59, and 60, and an updated version of DIPN No. 28.
DIPNs Nos. 58, 59 and 60 were issued to set out IRD’s views and practice on the relevant regulations under The Inland Revenue (Amendment) (No. 6) Ordinance 2018.
DIPN No. 58 provides detailed explanations on transfer pricing documentation requirements in Hong Kong. It contains 15 examples illustrating various scenarios that a taxpayer is or is not required to submit its country-by-country report, master file, and local file to the IRD.
DIPN No. 59 provides guidance on the arm’s length principle and transfer pricing rules in Hong Kong. This DIPN specifies that IRD has subscribed to databases, such as Osiris and Orbis, to identify external comparables.
This DIPN specifies that IRD has subscribed to databases, such as Osiris and Orbis, to identify external comparables.
Although the DIPN mentions that the IRD does not have any preference regarding the database adopted for benchmarking, tax officers can easily cross-check and quickly verify benchmarking analysis if a taxpayer uses the same databases as the IRD.
DIPN No. 60 discusses the definition of permanent establishment and provides guidance on how to ascertain profits attributable to a permanent establishment in Hong Kong.
Both DIPNs Nos. 59 and 60 state that transfer pricing is not an exact science and thus the related administrative penalty (i.e., an amount not exceeding the amount of tax undercharged) is lower than those for other non-compliance under the Inland Revenue Ordinance (i.e., an amount not exceeding three times of tax undercharged).
These DIPNs also explain that there would be no penalty if taxpayers can prove that reasonable efforts have been made to determine the arm’s length amount for related-party transactions.
DIPN No. 28 was updated to set out IRD’s interpretation and practice on the provisions relating to foreign tax deduction after the enactment of the Inland Revenue (Amendment) (No. 6) Ordinance 2018.
The full version of the above mentioned DIPNs can be found at the following links: DIPN58, DIPN59, DIPN60, DIPN28 (Revised).
Agnes W.Y. Lo
Professor Lo has been a faculty member at Lingnan University for more than 15 years.
She mainly teaches Taxation that covers a wide range of topics including international tax planning, transfer pricing, and tax policy and its relevance to society. Her primary research areas include corporate governance and disclosure, and tax avoidance in general and avoidance through transfer pricing in particular.
Professor Lo co-authored a book entitled “International Transfer Pricing in China: Post WTO”, the content of which was used as training materials for the HKICPA workshops.
She has also published her work in the mainstream accounting journals including The Journal of the American Taxation Association, Journal of Corporate Finance, Journal of Accounting and Public Policy, International Tax Journal, etc.
Latest posts by Agnes W.Y. Lo (see all)
- China simplifies unilateral advance pricing arrangement procedures for some taxpayers - April 1, 2021
- China signed 21 advance pricing arrangements in 2019, report shows - November 17, 2020
- Hong Kong revises transfer pricing guidance on advance pricing arrangements - July 23, 2020
- Hong Kong revises guidance on advance tax rulings - April 29, 2020
- China simplifies procedure for claiming tax treaty benefits - November 17, 2019
Dr. Raymond M. K. Wong
Dr. Raymond Wong currently serves as Associate Dean (Undergraduate Programmes) of the College of Business at City University of Hong Kong. During his tenure in City University of Hong Kong, he has taken up various executive roles and has been contributing tremendously to the Department’s undergraduate education program.
He obtained substantial experiences in handling academic and administrative issues related to teaching and learning, globalization in accounting education, and knowledge transfers. One of his primary research interests is about taxation, with particular focus on reporting of related-party transactions and transfer pricing issues in China.
His research also covers accounting and auditing issues in China and his work appeared in several leading accounting and finance journals.
Latest posts by Dr. Raymond M. K. Wong (see all)
- China simplifies unilateral advance pricing arrangement procedures for some taxpayers - April 1, 2021
- China signed 21 advance pricing arrangements in 2019, report shows - November 17, 2020
- Hong Kong revises transfer pricing guidance on advance pricing arrangements - July 23, 2020
- Hong Kong revises guidance on advance tax rulings - April 29, 2020
- China simplifies procedure for claiming tax treaty benefits - November 17, 2019
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