Hong Kong’s priorities for implementing the OECD/G20 base erosion profit shifting (BEPS) project include adopting the four BEPS minimum standards and putting in place a legislative framework for a new transfer pricing regulatory regime, according to an Inland Revenue Department (IRD) consultation paper released October 26.
As a member of the BEPS inclusive framework, Hong Kong has agreed to adopt all four BEPS minimum standards, namely, countering harmful tax practices, preventing treaty abuse, imposing a country-by-country reporting requirement, and improving cross-border dispute resolution. Implementation of these standards should be Hong Kong’s top priority, the paper states.
Anther priority is to adopt into law rules on transfer pricing and require that these rules be construed consistently with OECD standards, the IRD paper states.
This change would improve Hong Kong’s existing system where administrative rules, such as antiavoidance provisions, are relied on in cases of non-arm’s length transfer pricing. It would also lead to greater clarity and certainty
A proposed statutory advance pricing agreement regime, to replace the current system founded in administrative practice, is also proposed in the paper, as is a penalty for taxpayer’s that use non-arm’s length pricing.
The paper sets out detailed proposals for rules on transfer pricing documentation and country-by-country reporting.
It also proposes measures to enhance double tax relief, such as by allowing a longer period to claim a tax credit.
The IRD proposes that Hong Kong sign the OECD multilateral instrument to implement the tax treaty-related BEPS measures. Hong Kong is inclined to adopt the principle purpose option for tax treaties, the paper states.
The IRD further proposes to introduce into law a mechanism to facilitate mutual agreement procedure (MAP) and arbitration cases in Hong Kong.
The consultation will run until December 31.
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