Подписаться на нашу рассылку
* обязательно для заполнения

Контактная информация
Наша страница Linkedin  

published: October 2015 on www.hg.org  

On 5 October 2015, the Organisation for Economic Cooperation and Development (OECD) issued a final report with regards to its Action Plan to address Base Erosion and Profit Shifting (BEPS), as well as a plan for follow-up work and a timetable for implementation. In this article, we shall focus on the action plan regarding transfer pricing (TP) and its tax implications to China and Hong Kong.


The OECD’s Action Plan on BEPS, which was launched in July 2013 and endorsed by the G20, includes fifteen key areas for identifying and curbing aggressive tax planning and practices and modernizing the international tax system. The OECD issued interim reports with respect to seven of the fifteen action items in September 2014. Those 2014 reports have been consolidated with the remaining 2015 deliverables to produce a set of final recommendations for addressing BEPS.

The Fifteen Technical Area of OECD’s Action Plan on BEPS

The fifteen technical area of OECD’s Action Plan on BEPS are outlined in the table below.

Action Plan

Key Technical Area

Action 1

Address the tax challenges of the digital economy

Action 2

Neutralize the effects of hybrid mismatch arrangements

Action 3

Strengthen CFC rules

Action 4

Limit base erosion via interest deductions and other financial payments

Action 5

Counter harmful tax practices more effectively, taking into account transparency and substance

Action 6

Prevent treaty abuse

Action 7

Prevent the artificial avoidance of PE status

Action 8

Moving intangibles among group members

Action 9

Transferring risks among or allocating excessive capital to group members

Action 10

Engaging in transactions which would not or would only very rarely occur between third parties

Action 11

Establish methodologies to collect and analyze data on BEPS and the actions to address it

Action 12

Require taxpayers to disclose their aggressive tax planning arrangements

Action 13

Re-examine transfer pricing documentation

Action 14

Make dispute resolution mechanisms more effective

Action 15

Develop a multilateral instrument

Action 13: Re-examine transfer pricing documentation


Action 13 recognizes that enhancing transparency for tax administrations by supplying them with sufficient information to carry out transfer pricing risk assessments and examinations is a critical part of tackling the BEPS problem.

The OECD has released three deliverables under Action 13:

  1. Guidance on Transfer Pricing Documentation and Country-by-Country (CbyC) Reporting in September 2014;
  2. Guidance on the Implementation of Transfer Pricing Documentation and CbyC Reporting in February 2015; and
  3. CbyC Reporting Implementation Package in June 2015.

Key points:

  • The OECD has recommended a three-tier approach to documentation which includes preparing a master file, local file and CbyC report.
  • The master file is used to provide a blueprint of the Multinational Corporation (MNC) group containing standardized information relevant for the MNC group. The local file offers additional detail on the operations and transactions related to that jurisdiction and the economic analyses of the intercompany transactions. Lastly, the CbyC report shows summary data by jurisdiction including income, taxes as well as indicators of economic activities.
  • The OECD has recommended that (a) the CbyC report be required for MNC groups with annual consolidated group revenue of more than €750 million; (b) it shall begin for MNC’s financial year beginning on or after 1st January, 2016; (c) it shall be submitted by the ultimate holding company of the MNC in its jurisdiction or by a surrogate holding entity; and (d) it is due one year after the financial year-end of the holding company.
  • The master file and local file shall be filed with the jurisdictions demanding the reports.


The OECD added a number of cross references in the final Actions 8-10 reports to Action 13. As a consequence, it shall be essential for MNC groups to present a consistent story beginning with the contractual arrangements, the business activity substance of the relevant parties and the write-ups of such activities in the transfer pricing documentation. As far as we know, a lot of MNC groups have already commenced in preparing their master files and CbyC reports, given the burden and extra time are expected to be taken for these requirements.

Tax Implications to China and Hong Kong

One major aspect of the OECD’s BEPS initiative is the introduction of CbyC reporting that will provide tax authorities with full transparency on the entire business value chain of taxpayers, including the income, profit and taxes paid in each jurisdiction. According to the best of our knowledge, the tax authorities of Mainland China shall make use of this as their effective tool to investigate and understand where the taxpayers are paying their taxes and whether the tax authorities of Mainland China themselves are receiving their fair share of such taxes.

For Hong Kong companies, particularly those being the subsidiaries of BVI, Bermuda and Cayman Islands, etc., it is believed that the Hong Kong Inland Revenue Department shall take into account the other side of the cross border related party transaction as well as the underlying commercial substance, when they consider whether the profits generated by the Hong Kong subsidiaries shall be regarded as offshore sourced. Consequently, now is the best time for MNC groups to review their tax and transfer pricing methodologies in Hong Kong as well as the relevant regions, thereby streamlining them with the latest development of worldwide taxation, resulting into a transfer pricing model that is commercially realistic, defensible and sustainable.


It is advisable that, MNC groups pay special attention to the increasing risk of tax audits, special tax adjustments causing double taxation, penalties and interests. Making use of local tax and transfer pricing rules as well as designing business model from functional, economic and risk perspectives, MNC groups recognize their profits in the jurisdiction(s) where they generated. Specifically to Hong Kong, MNC groups can think of re-engineering their business operation model to enhance economic or commercial substance in Hong Kong, while accepting that Hong Kong profits are now being regarded as onshore sourced and shall be subject to 16.5% profits tax.


Masson de Morfontaine is an international tax and business advisory services firm based in Hong Kong specializes in providing comprehensive professional services for worldwide clients. We are experts helping our clients with practical tax and business advices and keen on advising transfer pricing issues and preparing supporting documentation. We are more than welcome to discuss with you about our services. Please call or email us should you require more information.


Этот адрес электронной почты защищён от спам-ботов. У вас должен быть включен JavaScript для просмотра.
  Wilson YEUNG
International Tax Director
Этот адрес электронной почты защищён от спам-ботов. У вас должен быть включен JavaScript для просмотра.


Disclaimer: This article is issued for information purpose only and it should not be viewed as a professional advice. Accordingly, you should not act solely on the basis of the material contained in this article. We recommend that formal advice be sought before acting in any of the areas.

2015 Masson de Morfontaine Limited.  All rights reserved.

Подписаться на нашу рассылку
* обязательно для заполнения

Контактная информация
Наша страница Linkedin