By Agnes Lo, Associate Professor of Teaching, Lingnan University, Hong Kong & Raymond Wong, Associate Dean, City University of Hong Kong
Hong Kong’s Inland Revenue Department, on 15 July, published revised guidance setting out the Hong Kong government’s interpretation and practice relating to advance pricing arrangements.
The revised guidance, Departmental Interpretation and Practice Notes (DIPN) No. 48, follows the enactment of the Inland Revenue (Amendment) (No. 6) Ordinance 2018, replaces the guidance issued in 2012, and explains the streamlined process of advance pricing arrangements.
The revised DIPN No. 48 introduces an application for unilateral advance pricing arrangements. Taxpayers can now apply for unilateral, bilateral, and multilateral advance pricing arrangements in Hong Kong.
The revised DIPN No. 48 introduces an application for unilateral advance pricing arrangements. Taxpayers can now apply for unilateral, bilateral, and multilateral advance pricing arrangements in Hong Kong.
In general, an advance pricing arrangement will cover a period of three to five years. The Hong Kong Inland Revenue Department may allow rollback of transfer pricing methodologies adopted in bilateral or multilateral advance pricing arrangements to previous tax years.
It also specifies thresholds for advance pricing arrangement applications.
For example, the threshold for an application on purchase and sale of goods is HK$80 million per year, on provisions of services is HK$40 million per year, and on royalties of intangible assets is HK$20 million per year.
For advance pricing arrangement applications related to the attribution of profits to a permanent establishment in Hong Kong, the annual business profits threshold is HK$20 million.
The process of advance pricing arrangements has also been revised to reflect a principle-based approach, a more streamlined process, and revamped procedures to improve timeliness. The revised process has been reduced from five stages to three stages.
These three stages of the application process are (i) early engagement, (ii) advance pricing arrangement application, and (iii) monitoring and compliance. The tentative timeframe is six months for the early engagement stage and 18 months for the application stage, whereas a longer timeframe may be required for more complex cases.
The full version of the DIPN No. 48 can be found at the following link: DIPN48 (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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