Hong Kong’s Financial Secretary on 22 February 2017 delivered the budget speech to the Legislative Council, and the government’s plan for implementing a statutory transfer pricing regime in Hong Kong was briefly mentioned in this year’s budget speech.
In particular, the Financial Secretary re-affirmed Hong Kong’s position with regard to the package of measures put forward by the Organisation for Economic Cooperation and Development (OECD) to address base erosion and profit shifting (BEPS), and noted that Hong Kong has joined the OECD’s inclusive framework for implementing the BEPS package and is expanding its network of comprehensive avoidance of double taxation agreements.
The Hong Kong Inland Revenue Department currently relies on general anti-avoidance provisions in the Inland Revenue Ordinance to address transfer pricing matters. However, application of these provisions is limited, and not always effective.
The Hong Kong government conducted a public consultation exercise in late 2016 concerning the BEPS initiatives and for the adoption of a formal transfer pricing regime in Hong Kong with mandatory documentation requirements—including country-by-country reports for larger multinational groups.
The consultation included proposals for:
Tax professionals have observed there are certain areas of the consultation paper that have not yet been clarified, and thus hope that any future transfer pricing legislation would address or clarify: (1) the definition of “related party”; (2) what would constitute an “incorrect tax return” that could trigger penalties; (3) the interaction between the Hong Kong source rules and a transfer pricing regime; and (4) the dates for filing the Master file and the Local file documentation.
The Deputy Commissioner of the Inland Revenue Department recently indicated that draft transfer pricing legislation has been prepared, and is ready to be presented to the Legislative Council. It appears the government intends to approve new transfer pricing law this year, with a possible release in the first half of 2017. The tax authorities also have confirmed that CbC reports have already been officially included in the automatic exchange of information framework.
Read a February 2017 report [PDF 2.4 MB] prepared by the KPMG member firm in Hong Kong: Budget Summary 2017-2018
© 2018 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.