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Hong Kong Inland Revenue Issues Note On Transfer Pricing Practice

by Mary Swire,, Hong Kong

08 December 2009

Hong Kong's Inland Revenue Department (IRD) has issued Departmental Interpretation and Practice Notes No. 46 (DIPN 46) entitled "Transfer Pricing Guidelines – Methodologies and Related Issues."

DIPN 46 also refers to the previous DIPN 45 which deals with double taxation relief of transfer pricing adjustments. Hong Kong has so far concluded five Double Taxation Agreements (DTAs) with Belgium, Thailand, Mainland China, Luxembourg and Vietnam. They all mandate the adoption of the arm’s length principle for pricing transactions between associated enterprises. It is expected that future DTAs will contain similar provisions.

The purpose of DIPN 46 is to illustrate how the IRD would apply transfer pricing principles; and to indicate how the IRD would seek to apply transfer principles to resolve disputes involving transfer pricing issues.

DIPN 46 further explains the Organization for Economic Cooperation and Development (OECD) Transfer Pricing Guidelines in the Hong Kong context, in particular the way the OECD transfer pricing methodologies would be applied in Hong Kong under the Inland Revenue Ordinance (IRO).

DIPN 46 makes it clear that IRD would seek to apply the principles in the OECD Transfer Pricing Guidelines, except where they are incompatible with the express provisions of the IRO.

DIPN 46 illustrates that the provisions in the IRO and the relevant articles in the DTAs should allow the IRD to reallocate profits or adjust deductions by substituting an arm's length consideration.

This comprehensive report in our Intelligence Report series examines the global and national landscapes in which companies can use transfer pricing to improve their after-tax returns, including summaries of recent developments in design of the corporate supply train, the usefulness of 'offshore' in international corporate tax planning, and a section covering the spread of DTAAs and CFC laws. It is available in the Lowtax Library at and a description of the report can be seen at

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