All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Hong Kong SAR updates DIPN 48 on streamlining APAs

Sponsored by

sponsored-firms-kpmg.png
 Some tax authorities are looking to audits as a means of replenishing depleted coffers

Lewis Lu and John Timpany of KPMG analyse the implications of the revised guidance on advance pricing arrangements in Hong Kong SAR.

On July 15 2020, the Inland Revenue Department (IRD) released the revised Departmental Interpretation and Practice Notes No. 48 (DIPN 48).

The updates were to: (a) reflect the legislative changes made by the Inland Revenue (Amendment) (No. 6) Ordinance 2018 in relation to the statutory advance pricing arrangement (APA) regime in Hong Kong SAR; and (b) explain the streamlined APA process.



DIPN 48



The key revisions in DIPN 48 include the following:



Unilateral APA: Unilateral APA applications are now accepted. This is to provide certainty for related party transactions with jurisdictions which Hong Kong SAR has no double tax agreement (DTA) with.



APA rollback: Requests for rollback of transfer pricing (TP) methodology under bilateral and multilateral APAs can be considered. This provides a means of resolving collateral issues and reduces the overall time needed for the APA process. The rollback option also helps to manage historical risk in that tax audits/TP inquiries from prior years may be resolved with less penalty pressure.



Streamlined APA process: The APA process has been streamlined from the original five-stage process to a three-stage process, namely: (i) Stage 1: Early engagement; (ii) Stage 2: APA application; and (iii) Stage 3: Monitoring and compliance. The level of documentation required at the early stage has also been reduced. These overall revisions aim to improve the timeliness and efficiency of processing APA applications. 



Application to permanent establishments and other transactions: The coverage of APAs has been extended to include the attribution of profit to a permanent establishment in Hong Kong SAR (with a threshold of HK$20 million business profits per annum). The changes also include transactions other than the sale or purchase of goods, provision of services and use of intangible properties (with a threshold of HK$20 million per annum).



APA fees: Further guidance is provided regarding the fee payable for an APA application, including the provision of a fee estimate by any independent expert from whom the Inland Revenue Department (IRD) would like to seek assistance. This enables taxpayers to better quantify the potential costs involved and accordingly decide whether the APA application should be proceeded with or not.



Other considerations: Considerations as to when a taxpayer should enter an APA and when the IRD will prioritise an APA application are also provided. 



KPMG observations



The revised DIPN 48 reflects the IRD’s commitment to further develop the APA programme in Hong Kong SAR. This is welcomed given the significant increase in TP controversies internationally as well as locally since the OECD’s action plan against BEPS was introduced. The indicators provided in the updated DIPN 48 with respect to suitability of concluding APAs allow taxpayers to better evaluate the feasibility of a potential APA before initiating the process. 



The streamlined APA programme offers taxpayers an improved avenue to lock in their TP positions in Hong Kong SAR and counterparty jurisdictions, which could potentially help to resolve any existing controversies or uncertainties. Taxpayers should seek professional advice during this process to ensure an all-rounded assessment is conducted.



Lewis Lu

T: +86 10 8508 5002

E: lewis.lu@kpmg.com



John Timpany

T: +852 2143 8790

E: john.timpany@kpmg.com




more across site & bottom lb ros

More from across our site

ITR looks into the biggest transfer pricing cases in 2022 including multinational companies McDonald’s, BlackRock, and Rio Tinto.
TP technical leader at ‘big four’ firm KPMG Philip Roper talks to senior reporter Leanna Reeves about how businesses can mitigate the transfer pricing impact of higher interest rates in the UK.
Vikas Garg talks to reporter Siqalane Taho about how regulation, technology and the goods and services tax has affected the manufacturing company.
A major shift is underway in tax as the profession transitions from a mostly accounting and finance sector to a hybrid industry that requires significant IT skills, say tax experts.
The Biden administration is about to give $80 billion to the Internal Revenue Service to enhance the tax authority’s enforcement processes and IT systems.
Audi, Porsche, and Kia say their US clients will face higher prices under the Inflation Reduction Act after the legislation axes an important tax credit for electric vehicle production.
This week Brazil’s former President Luiz Inacio Lula da Silva came out in support of uniting Brazil’s consumption taxes into one VAT regime, while the US Senate approved a corporate minimum tax rate.
The Dutch TP decree marks a turn in the Netherlands as the country aligns its tax policies with OECD standards over claims it is a tax haven.
Gorka Echevarria talks to reporter Siqalane Taho about how inflation, e-invoicing and technology are affecting the laser printing firm in a post-COVID world.
Tax directors have called on companies to better secure their data as they generate ever-increasing amounts of information due to greater government scrutiny.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree