Hong Kong Explains Relief From Double Taxation Due To Transfer Pricing

by Mary Swire, Tax-News.com, Hong Kong

19 May 2009

The Hong Kong Inland Revenue Department has issued Departmental Interpretation and Practice Notes No 45 (DIPN 45) concerning double taxation relief due to transfer pricing or profit reallocation adjustments.

DIPN 45 explains how relief from double taxation due to transfer pricing and profit reallocation adjustments should be provided. It addresses issues relating to economic (taxation on two associated enterpises) and juridical (taxation on one enterprise in two states) double taxation. It also covers situations where the Hong Kong SAR does not have a double taxation agreement with the relevant overseas tax jurisdiction. The mutual agreement procedure is further explained in the context of providing double taxation relief.

The 'Associated Enterprise Article' in each of Hong Kong's Double Taxation Agreements (DTAs) is modelled on Article 9 of the standard OECD 'Tax Convention on Income and Capital' and provides for primary transfer pricing adjustments and a mechanism for relief from double taxation.

The 'Business Profits Article' and 'Method for Elimination of Double Taxation Article' in each DTA are based on Articles 7 & 23 respectively of the OECD model and provide for both primary profit reallocation adjustments and relief from juridical double taxation.

There is also a 'Mutual Agreement Procedures Article', which is based on Article 25 of the OECD model.

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