The Commissioner of Hong Kong Inland Revenue Department recently commented on the implementation of BEPS project in Hong Kong, particularly in the area of transfer pricing (TP). The Hong Kong Government regards TP legislation and TP documentation requirements are their top priority. The Commissioner also said that the simplified limitation on benefits (LOB) rule as well as the principle purposes test (PPT) will very likely be the norm for Hong Kong tax treaties in the coming future.
As the probability of introducing specific TP legislation and documentation requirements in Hong Kong is increasing, multinational enterprises with cross-border related party transactions shall get themselves ready for IRD’s closer scrutiny on their TP related issues, as well as more disclosure of TP related information. Moreover, facing the possible incorporation of the simplified LOB rule and the PPT into the Hong Kong tax treaties, enterprises which hold their investments through Hong Kong investment holding vehicles shall review and examine whether their existing structures can really fulfil the criteria specified in the new anti-treaty shopping rules and withstand possible challenges from Hong Kong's tax treaty partners, in view to figure out the alternatives available to ensure the sustainability of such investment structures under the new rules.