The Inland Revenue (Amendment) (No. 6) Ordinance 2018 in Hong Kong was gazetted on July 13, 2018. Its primary purpose was to align Hong Kong’s tax laws with international standards under the Base Erosion and Profit Shifting (BEPS) package developed by the OECD. Below are the key features and objectives of this ordinance:

Objectives

1. Codification of Transfer Pricing Rules:
   • The ordinance codifies transfer pricing principles into the Inland Revenue Ordinance (IRO), providing clarity and certainty for taxpayers.
2. Implementation of BEPS Minimum Standards:
   • It incorporates measures to counter tax avoidance strategies, such as country-by-country (CbC) reporting, master file/local file requirements, and cross-border dispute resolution mechanisms.
3. Enhancement of Preferential Tax Regimes:
   • Amendments were made to remove “ring-fencing” features in preferential tax regimes, extending concessionary tax rates to both domestic and foreign transactions.

Key Provisions

1. Transfer Pricing Documentation:
   • Taxpayers are required to prepare master files, local files, and CbC reports if certain thresholds are met. For example, multinational enterprises with annual consolidated group revenue exceeding HK$6.8 billion must file CbC reports.
2. Effective Dates:
   • Provisions related to CbC reporting apply to accounting periods starting on or after January 1, 2018.
   • Master file/local file requirements apply to accounting periods starting on or after April 1, 2018.
   • Certain provisions related to intellectual property taxation and income attribution for non-resident permanent establishments apply from April 1, 2019.
3. Double Taxation Relief:
   • Enhancements were made to provisions for tax credits and relief against double taxation, applicable from the year of assessment beginning April 1, 2018.
4. Advance Pricing Arrangements (APA):
   • The ordinance provides a statutory basis for APAs and mutual agreement procedures for resolving cross-border tax disputes.

Compliance Guidance

The Inland Revenue Department (IRD) provides detailed implementation guidance through Departmental Interpretation and Practice Notes to help businesses comply with these new requirements.

This amendment reflects Hong Kong’s commitment to maintaining its status as an international financial center while adhering to global tax transparency and anti-avoidance standards.