In October 2016, the Hong Kong government announced a consultation for a transfer pricing regime. The comment period for responses to the proposed introduction of transfer pricing rules for Hong Kong ended at the conclusion of 2016.
In general, the aim of the transfer pricing rules would be for taxpayers to report an arm's length fee / profit for the activities they conduct or perform. The profits allocated to Hong Kong then would only be subject to tax to the extent they are Hong Kong sourced and within the assessing provisions. However, there were concerns expressed in some comments to the consultation that the Hong Kong-source principles may be diluted or inappropriately interpreted under the new transfer pricing rules.
At present, it is not certain what would be the effect of these comments or whether the suggestions will be reflected in draft transfer pricing legislation. In any event, Hong Kong corporate taxpayers need to start planning for the introduction of transfer pricing documentation rules. With more tax disputes expected, tax professionals also believe that Hong Kong must have an effective competent authority and a practical advance pricing arrangement (APA) programme to address the anticipated future dispute case-loads.
Read a February 2017 report [PDF 168 KB] prepared by the KPMG member firm in Hong Kong
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