The Inland Revenue Department (IRD) recently signed its first unilateral advance pricing arrangement (APA).
The IRD previously had concluded bilateral APAs with Hong Kong’s treaty partners—but not unilateral APAs.
In anticipation of what eventually was enacted as the new transfer pricing regime, the taxpayer group reviewed its related-party transactions to consider a policy that better reflected the value contributed by a major group company. The taxpayer then applied for an APA from the IRD with regards to its royalty and service fee arrangements. The IRD accepted the taxpayer’s APA application—the first unilateral APA concluded in Hong Kong.
The unilateral APA is being viewed as a positive step because it gives much needed certainty to the taxpayer regarding its new transfer pricing policy. It also demonstrates the IRD’s commitment to adopt a transfer pricing regime that matches global international tax developments and that the IRD is open to concluding unilateral APAs.
Taxpayers may consider concluding unilateral APAs with the IRD in situations when there is no double tax agreement or as an alternative to multilateral APAs when the related-party transactions involve many jurisdictions.
With the new transfer pricing measures enacted in July 2018, taxpayers need to consider a proactive approach to address the following issues:
Read a January 2019 report prepared by the KPMG member firm in Hong Kong
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