India: Delving Into Hong Kong's New Transfer Pricing Landscape

Last Updated: 13 June 2019
Article by SKP  

On 04 July 2018 the Inland Revenue Department (IRD) passed Hong Kong's final Inland Revenue (Amendment) (No. 6) Bill 2017, (the Amendment Bill). This Amendment Bill (became a law on 13 July 2018) specified the documentary requirements from a Transfer pricing perspective and also introduced measures to address various recommendations under BEPS Action Plans. With the amendment in the Ordinance 2018, Hong Kong has implemented the minimum standards for Base Erosion and Profit Shifting (BEPS) package and formally introduced a Transfer Pricing (TP) regulatory regime and documentation requirement into Hong Kong tax law.

This article is intended to lay down the key elements of the new TP regime in Hong Kong and our comments on the areas that companies' management ought to deliberate to adhere in terms of the regulatory TP compliance.

Arm's Length Principle (ALP)

The IRD has been empowered to impose TP adjustments on either income or expense arising from non-arm's length transactions between associated persons that lead to a

potential Hong Kong tax advantage. However, domestic related party transactions are exempted from this rule if the following conditions are met:

  • Transactions are domestic in nature;
  • Transactions that do not lead to tax difference; and
  • Transactions are not used for tax avoidance.

Effective from: Year of Assessment (YOA) beginning on or after 1 April 2018

Points for Consideration

  • It would be important to note that the applicability of ALP is independent of the applicability of TP documentation. Therefore, transfer pricing arrangements of all the taxpayers, irrespective of documentation threshold that are inconsistent with the ALP, will have to be corrected.
  • The ALP applies to all types of tax, including profits tax, property tax, and salaries tax. Hong Kong adopted a scheduler income tax system, which is different from the comprehensive income tax regimes of several overseas' tax jurisdictions whereby all the sources of income are aggregated for assessment purposes.

Attribution of Profits to a permanent establishment (PE)

Specific provisions have been introduced, which apply to any non-resident who has a permanent establishment (PE) that carries on a trade, profession, or business in Hong Kong.

The guidance on attributing income/loss to a PE is based on the Authorised OECD Approach (AOA). The IRD has clarified that its long-established Territorial Source Principle of Taxation will continue to apply to determine the chargeability of income or profits to Hong Kong tax. Therefore, this provision will not limit or alter the conditions for charging profits tax, which means that only those attributable profits that have a Hong Kong-based source will be subject to tax.

Effective from: YOA beginning on or after 1 April 2019 Points of Consideration

  • The definition of PE for DTA countries differs from that of the non-DTA countries:

    • For DTA countries, it is based on the PE article in Hong Kong's existing DTAs
    • For non-DTA countries, it is based on the recommendations given in OECD BEPS Action 7
  • Particular relevance to financial institutions, banks, and insurance companies that often maintain Hong Kong branches, since the PE in Hong Kong, was not specifically compensated in the past. This is also the reason why the implementation was delayed by 12 months.
  • With the application of territorial source rules, only the on-shore-sourced profits (and not off-shore) related to the operations of the PE in Hong Kong will be chargeable to tax. In other words, the application of the AOA, in conjunction with the source rules, may result in more profits for the entity that is subject to tax in Hong Kong.
  • IRD has deferred implementation of this provision by one year to allow sufficient time for taxpayers that require a transition to using the AOA.
  • IRD will provide further guidance on the application of this provision.

Treatment of Intangibles

IRD could impose a tax on the Hong Kong taxpayers if they have carried out value creation activities, such as development, enhancement, maintenance, protection or exploitation (DEMPE) functions in Hong Kong that contributed to any intellectual property (IP) held by an overseas related party.

Effective date: YOA beginning or after 01 April 2019

Points for Consideration

The taxpayers should ensure compliance with the arm's length principle and properly document the transfer pricing position of their IP strategy in view of the potential tax uncertainties that arise. Furthermore, the effective date has also been deferred to give more time to the groups to analyze the implications and take necessary steps.

To view the full article click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Practice Guides
by Mondaq Advice Centres
Relevancy Powered by MondaqAI
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions