HONG KONG, Jan. 7 – The Hong Kong Inland Revenue Department (IRD) recently released DIPN 46 to illustrate how transfer pricing principles will be applied in the territory.

The 55 page document explains how OECD Transfer Pricing Guidelines will be practiced in Hong Kong particularly how OECD transfer pricing methodologies will work with its own Inland Revenue Ordinance (IRO). It says that the IRD will seek to practice transfer pricing based on the OECD Transfer Pricing Guidelines except where it is incompatible with the provisions of the IRO.

According to the agency, DIPN 46 shows the provisions in the IRO and the relevant articles in double tax agreements that should allow the IRD to reallocate profits or adjust deductions by substituting an arm’s length consideration. The territory has so far signed double tax agreements with Belgium, Thailand, Mainland China, Luxembourg and Vietnam.

Transfer pricing is a relevant issue for global businesses dealing with prices charged between associated companies for the transfer of goods, services and intangible property.

A copy of the DIPN 46 can be downloaded here.

For assistance on Hong Kong tax issues, email hongkong@dezshira.com.