The Hong Kong Inland Revenue Department has issued Departmental Interpretation and Practice Notes (DIPN) Nos. 58, 59, and 60 to set out the Department’s interpretation and practice on transfer pricing rules and documentation requirements that were codified through Inland Revenue (Amendment) (No. 6) Ordinance 2018 (previous coverage).
DIPN 58 covers the three-tiered approach to transfer pricing documentation that was implemented as part of the Ordinance. This includes Local and Master file requirements, which apply in relation to accounting periods beginning on or after 1 April 2018, and CbC reporting requirements, which apply in relation to accounting periods beginning on or after 1 January 2018. The requirements are consistent with the OECD’s three-tiered standardized approach.
DIPN 59 provides an overview of Hong Kong's new transfer pricing rules, which generally apply for transactions entered into or effected on or after 13 July 2018. This includes:
In addition, Appendices are provided in DIPN 59 that provide further guidance on Commercial or Financial Relations, Transfer Pricing Methods, Intra-group Services, Trading Stock, and Intangibles.
With respect to intangibles, this includes rules regarding the appropriate allocation of profits associated with the transfer and use of intangibles among members of an MNE group based on their contribution to value creation. The rules for intangibles apply from 1 April 2019.
DIPN 60 provides an overview of Hong Kong's attribution rules, which apply in relation to a year of assessment beginning on or after 1 April 2019. This includes:
In addition, Appendices are provided in DIPN 60 that provide further guidance on basic principles used to attribute profits to a bank permanent establishment and documentary support for the AOA in addition to/ incorporated into the Local file.
Note - transactions between associated persons or non-Hong Kong resident persons’ permanent establishments in Hong Kong, to which the new transfer pricing-related provisions in the Inland Revenue (Amendment) (No. 6) Ordinance 2018 do not apply, should be dealt with in accordance with DIPN 45 and DIPN 46, which were issued in 2009.
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