In December 2009, the Inland Revenue Department (“IRD”) issued the Departmental Interpretation and Practice Notes (“DIPN”) No. 46 “Transfer Pricing Guidelines – Methodologies and Related Issues). In the DIPN No. 46, the Commissioner of the IRD confirms that he would in general seek to apply the principles in OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

There is no specific TP documentation requirement, and only limited TP disclosure in profits tax return concerning whether or not there is transaction with a closely connected non-resident person is required. In addition, related party transactions have to be disclosed in audited accounts in accordance with accounting standards.

No major TP audits have been done by the IRD so far.

No advance pricing arrangement under Hong Kong tax laws. Taxpayer may obtain IRD’s interpretation of a specified provision applicable to transfer pricing arrangement under the current advance ruling process.

Provisions for mutual agreement are found in double tax agreements between Hong Kong and other tax jurisdictions.

There is no specific requirement. Intra-group service charges are subject to the general deduction rules under Hong Kong tax laws. There is no withholding tax imposed on such payment to non-resident.

There is no specific requirement. Management fee charges are subject to the general deduction rules under Hong Kong tax laws. There is no withholding tax imposed on such payment to non-resident.

No interest rate is specified on inter-company loans. Interest expenses are subject to the general deduction rules under Hong Kong tax laws. There is no thin capitalization rule.

There is no specific penalty rule for TP arrangements. However, the general penalty rule may apply and penalty of up to three times of tax underpaid may be imposed.

Firm: Wong Brothers & Co., Hong Kong Contact person: Mr Johnny Yuen E-mail: wongbros@hkabc.net

This publication has been prepared for the purpose of quick information dissemination to our counterparts in other Countries. Its contents should not be used as a basis for advice or formulating decisions under any circumstances.