Transfer pricing law gazetted

It ensures that the concessionary tax regime meets international standards.

The Inland Revenue (Amendment) (No. 6) Ordinance 2018 which implements the minimum standards of the Base Erosion & Profit Shifting package and codifies transfer pricing principles has been gazetted.

The move ensures that Hong Kong’s concessionary tax regime is in line with international standards outlined in the Base Erosion and Profit Shifting (BEPS) agenda laid out by Organisation for Economic Cooperation and Development (OECD).

“The codification of the transfer pricing rules provides greater clarity and certainty for taxpayers, and the long-established territorial source principle of taxation will continue to apply to determine the chargeability of income or profits to Hong Kong tax,” the government said in a statement.

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However, accounting firm PwC earlier raised concern that the bill could raise compliance requirements for the domestic transactions of multinational corporations and that its broad scope of application has the potential to even be applied to small businesses. At the extreme, it could even deter international mobile business from Hong Kong.

“The Bill encompasses provisions that appear to require individuals who are owner-managers of businesses to pay salaries tax on their personal dealings with their companies at market rates. Combined with its treatment of intellectual property, this draft legislation could create uncertainty for start-ups in the tech space, for example,” PwC Hong Kong transfer pricing director Peter Brewin said in a report dated February.