Reports from Hong Kong indicate that the Inland Revenue Department is ready to challenge transfer pricing arrangements. The level of details and sophistication of the information requested, in relation to the allocation recharges from the head office and service companies, is elevating transfer pricing to a new level. With this enhanced scrutiny, taxpayers need to consider the sustainability of their current transfer pricing arrangements, evaluate their transfer pricing documentation, and assess areas of potential controversy.
The Inland Revenue Department (IRD) has investigated service fee payments made by taxpayers to their overseas head office or affiliated companies before. The difference now is that the IRD expects explicit transfer pricing support. A recent spate of inquiries by the IRD makes this clear. The level of details and sophistication of the information requested is seen as elevating transfer pricing to a new level in Hong Kong.
Read a July 2015 report prepared by the KPMG member firm in Hong Kong: Hong Kong IRD challenges transfer pricing arrangements on recharges from head office or service companies