TP Ticker – July 2018

Hong Kong TP Legislation

On 4 July 2018, the Inland Revenue (Amendment) (No. 6) Bill 2017 passed the legislative process of Hong Kong. The bill represents the first formal codification of transfer pricing (“TP”) regulations in Hong Kong; before, official guidance on transfer pricing for tax purposes was limited to departmental note from 2009. Besides explicitly elaborating on the arm’s-length principle, the bill includes provision about the valuation of trading stocks, intangible generating activities, the attribution of profit to permanent establishments, and the transfer pricing-related documentation requirements (Master File and Local File).

Information on the bill and the legislative process can be found on the website of the Legislative Council here: https://www.legco.gov.hk/yr17-18/english/bc/bc02/general/bc02.htm

OECD Discussion Draft of Financial Transactions

On 3 July, the OECD published a discussion draft on the transfer pricing aspects of financial transactions. This discussion draft represents follow-up work in clarifying the application of the principles of the OECD’s 2017 Transfer Pricing Guidelines (“2017 TPG”) to financial transactions. The main sections of the discussion draft cover the interaction with the guidance provided in the 2017 TPG on identifying the commercial and financial relations, treasury functions, guarantees, and captive insurance. While the section on the treasury function in detail covers intra-group loans, cash pooling, and hedging, guidance on the intra-group sale of receivables, thus factoring, is unfortunately missing. The OECD invites the public to general comments on this discussion draft as well as to comments on specific questions contained. Deadline for providing comments in written form is the 7 September 2018.

The discussion draft can be found on the website of the OECD here: https://www.oecd.org/tax/transfer-pricing/oecd-releases-beps-discussion-draft-on-the-transfer-pricing-aspects-of-financial-transactions.htm