Hong Kong: Guidance addressing transfer pricing issues (COVID-19)

IRD’s general views about COVID-related tax issues and transfer pricing.

IRD’s general views about COVID-related tax issues and transfer pricing.

The Inland Revenue Department (IRD) on 29 July 2021 issued guidance examining certain tax issues arising from the coronavirus (COVID-19) pandemic. 

COVID-19 has brought border closures and unprecedented disruption to the global business environment.  Many companies have had to change the way in which they operate, and employees have been forced to work in locations outside their usual place of employment.  The IRD guidance (29 July 2021) outlines the IRD’s general views around tax issues relating to tax residence of companies and individuals, permanent establishments (PEs), employment income of cross-border employees, and transfer pricing.

The IRD’s views and approach are generally in line with the Guidance on the Transfer Pricing Implications of the COVID-19 Pandemic (the OECD's COVID-19 Transfer Pricing Guidance) released by the Organisation for Economic Cooperation and Development (OECD) in December 2020. 

The IRD guidance is not legally binding and only represents the IRD’s general views.  Each case will be assessed based on its own facts and circumstances.  

Transfer pricing

Comparability analysis

The IRD guidance largely follows the OECD's COVID-19 Transfer Pricing Guidance which maintains the arm’s length principle for evaluating the transfer pricing of controlled transactions during the pandemic. 

The COVID-19 pandemic has created economic conditions that often differ from those of previous years that may reduce the reliance that can be placed on historical data when performing comparability analyses.  As a result, the IRD considers it may be appropriate to have separate testing periods for the duration of the pandemic or to include loss-making comparables when performing a comparability analysis.  A limited-risk entity could also be accepted to have incurred losses if the losses are found to be incurred at arm’s length.

The IRD guidance also follows the OECD’s views that the receipt of government assistance may also affect the price of a controlled transaction.   


COVID-19 has led to material changes in economic conditions that were not anticipated, and a taxpayer’s business may be significantly affected to the point where the terms and conditions under an advance pricing arrangement (APA) cannot be met.  As such, the IRD guidance follows the OECD’s views in upholding existing APAs, unless a condition leading to the revocation, cancellation or revision of the APA has occurred (such as a breach in critical assumptions).  Taxpayers are to notify the IRD not later than one month after the breach occurs.

For more information, contact the Global Leader of KPMG’s Global Transfer Pricing Services:

Komal Dhall | +1 212 872 3089 | kdhall@kpmg.com


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