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Hong Kong Updates Guidance On APA Regime

by Mary Swire, Lowtax.net, Hong Kong
24 July, 2020

Hong Kong's Inland Revenue Department has updated its guidance on Advance Pricing Agreements to reflect tax legislative changes in recent years and the territory's response to the OECD's base erosion and profit shifting Action Plan.

The guide explains that Hong Kong now offers unilateral APAs, as well as bilateral and multilateral APAs, to provide multinational taxpayers with certainty regarding their international tax affairs. These APAs can cover a period of three to five years, and in the case of bilateral and multilateral APAs may now include rollback provisions. Requests for extensions to existing APAs should be submitted six months before their expiry, the guidance says.

The guide provides an update on Hong Kong's new streamlined APA process, under which the previous five stages for the process have been slimmed to three.

In addition, Hong Kong has broadened the issues about which taxpayers can seek an APA. Hong Kong will newly issue APAs in respect of the attribution of profits to a permanent establishment in Hong Kong where it relates to business profits of at least HKD20m per annum, as well as APAs relating to intangible assets (with the same threshold). The other thresholds in place in the previous guide, dating back to 2012, remain in place: HKD80m per year for APAs covering the sale or purchase of goods, and HKD40m if an APA relates to the provision of services.

The guide newly sets out when Hong Kong will consider including rollback provisions in a bilateral or multilateral APA, advising that the IRD will more likely seek rollback for a lesser number of years in the case of a voluntary APA request than it would be for a case resulting from an audit, and is likely to seek rollback for issues rated as high risk.

The guidance states, as a rule of practice, the Commissioner will not consider requests for rollback in the case of unilateral APAs.

The IRD said the guidance - The Departmental Interpretation and Practice Notes No. 48 – has been updated mainly to reflect the legislative changes made by the Inland Revenue (Amendment) (No. 6) Ordinance 2018 in relation to the statutory advance pricing arrangement (APA) regime; and to explain the streamlined APA process.

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