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Hong Kong SAR updates DIPN 48 on streamlining APAs

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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.


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


John Timpany

T: +852 2143 8790


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