Hong Kong: Transfer pricing and offshore tax regimes

Hong Kong: Transfer pricing and offshore tax regimes

Hong Kong-based companies with offshore claim arrangements need to anticipate the impact of the enhanced reporting requirement in light of the OECD’s base erosion profit shifting (BEPS) initiatives.

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Given that Hong Kong has accepted the OECD's invitation to join—as an “associate”—the project and framework under the OECD's final reports and recommendations of the BEPS project, taxpayers need to consider how to manage transfer pricing and possible permanent establishment (PE) challenges or conflicts. While there may be a legitimate basis to make an offshore claim arrangement, there may be increasing questions from foreign tax authorities. While there may be a legitimate basis for companies in Hong Kong to make an offshore claim, foreign tax authorities may start questioning whether those profits that are not subject to tax in Hong Kong ought to be subject to tax in their jurisdiction instead.

Thus, appropriate questions for companies to consider are:

  • How well does the company’s offshore claim arrangement coincide with its transfer pricing policies?
  • While there may be a legitimate basis to make an offshore claim in Hong Kong, is the company ready to defend potential challenges from other tax authorities?
  • Can the company sustain a challenge to an offshore claim from the Hong Kong Inland Revenue Department?

These and other considerations need to be weighed in light of transfer pricing policies and possible consequences from a broader group perspective. 


Read a July 2016 report [PDF 151 KB] prepared by the KPMG member firm in Hong Kong: Transfer Pricing and the offshore tax regime in Hong Kong

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