News Share

The Tax Hub

Daily Tax Newsletter

Hong Kong

Responsive image

Hong Kong Updated Penalty Policy in Relation to Relief from Double Taxation, Exchange of Information, Transfer Pricing, APAs, MAP, and Others

The Hong Kong Inland Revenue Department has announced the update of its webpage on penalty policy. This update concerns punitive actions under Part 14 of the Inland Revenue Ordinance in relation to relief from double taxation, exchange of information, transfer pricing requirements, advance pricing arrangement (APA), mutual agreement procedure (MAP) and arbitration, etc. Depending on the nature of the offense, penalties include fines of HKD 10,000 or HKD 50,000, further fines of up to treble the amount of the tax undercharged, and possible imprisonment for up to three years.

The update also includes the Department's penalty policy for transfer pricing cases, which includes the assessment of additional tax based on the difference between the amount of income/loss declared in the return and the assessed arm's length amount. The scale of the penalty to be imposed on a person is a function of the nature of transfer pricing treatment and the efforts spent to determine the arm's length amount. For this purpose, a penalty loading table is used that may result in higher, lower, or even nil additional tax penalties as follows:

  • Where a person does not have a documented transfer pricing treatment, it may not be necessary to consider the reasonable efforts test in most cases as the person would find it difficult, if not impossible, to prove that reasonable efforts have been made to determine the arm's length amount, in which case the person will be liable to a higher additional tax;
  • Where a person has a documented transfer pricing treatment but does not satisfy the reasonable efforts test, the person will be liable to a lower additional tax; and
  • Where a person has a documented transfer pricing treatment and satisfies the reasonable efforts test, the person will not be liable to additional tax.

In general, a person is considered to have made reasonable efforts to have a documented transfer pricing treatment if, objectively considering the person's risk of not complying with the arm's length principle, and taking account of the person's relative resources, the person has taken all reasonable steps, in the particular facts and circumstances. Further information on the reasonable efforts test can be found in the Departmental Interpretation and Practice Notes No. 59 – Transfer Pricing Between Associated Persons.

The penalty policy for transfer pricing cases also notes aggravating factors that may result in an upward penalty adjustment of up to 25%, such as delaying or obstructing the progress of a transfer pricing examination. Mitigating factors are also included that may result in a downward penalty adjustment of up to 25%, such as voluntarily informing the Department of a transfer pricing shortfall amount.

Powerful Tax Tools

NEW

FX Rates

Global FX Rates including Tax Year Average FX Rates and Spot Rates for all Reporting Currencies.

NEW

Corporate Tax Rates

Corporate tax rates, surtaxes, and effective tax rates for the current year, as well as historical rates and approved future rates.

NEW

Country Analysis

Detailed tax guidance for companies doing business in over 100 countries, including summaries and snapshots of key tax facts and issues.

NEW

Cross Border Tax Calculator

Calculate total tax costs and benefits of a cross border transaction including withholding tax, participation exemption and foreign tax credit rules.

NEW

Cross Border Tax Rates

Provides Domestic, treaty and EU cross border tax rates for over 5,000 country combinations for 9 different payment streams.

NEW

OECD BEPS Project

Complete overview of the OECD BEPS Project, including daily BEPS news, country adoption of BEPS measures, and an overview of the 15 BEPS Actions.

NEW

Tax Calendar

Customizable calendar tool that tracks corporate income tax, value added tax and transfer pricing obligations by country or entity.

NEW

Tax Forms

English translations of key tax forms for over 80 countries, including tax return forms, treaty benefit forms, withholding tax forms, and more.

NEW

Worldwide Tax Treaties

Repository including thousands of tax treaties (in English), OECD, UN and US Models, relevant EU Directives, Technical Explanations, and more.

NEW

Worldwide Tax Planner

Calculates the worldwide tax cost of what-if scenarios based on legal entity structure, taxable income, and cross border transactions.

NEW

Certified Rates Report

Customizable Certified Rates Report providing updated corporate and withholding tax rates at the end of each month for over 100 countries.

NEW

Withholding Tax Minimizer

Enables quick calculation of tax costs and benefits of cross border transactions considering all possible transaction combinations and optimal routes.

NEW

VAT Rates

Provides value added tax (VAT) rates, goods and services tax (GST) rates and other indirect tax rates for over 100 countries.

NEW

NOL Calculator

Country specific calculator to determine how net operating losses can be utilized in carryback and carryforward years.

NEW

Transfer Pricing Calculator

Calculates TP ratios under various TP methods and calculates the difference between target ratios and actual ratios.

NEW

Individual Income Tax Rates

Individual tax rates for over 100 countries.

Play of the Day

Translate Documents

English translations of key tax forms for over 80 countries, including tax return forms, treaty benefit forms, withholding tax forms, and more.

We’re here to help

We’re here to answer any questions you have about the Orbitax products and services.

Send us a message

Who’s behind Orbitax?

We’re committed to providing high value, low cost tax research and management solutions.

Learn More