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
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.