The Hong Kong Government launched a public consultation exercise on 26 October 2016 to gauge views on the implementation of the OECD’s anti-base erosion and profit shifting (BEPS) initiatives. This is a far reaching development for Hong Kong taxpayers. The most significant proposal is for the adoption of a formal transfer pricing regime in Hong Kong, with mandatory documentation requirements.
Other than limited exemptions for smaller taxpayers, Hong Kong taxpayers with related party dealings will need to formalize and document their transfer pricing arrangements with related parties. Along with additional compliance and reporting obligations, there will be penalties for non-compliance. The HK Government has said it wishes to take a pragmatic approach and to enhance clarity and certainty while striving to maintain a simple, neutral and transparent tax regime. The devil will be in the details to follow.