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13.4.1. Main Rules

In addition to the aforementioned provisions used in handling transfer pricing cases, the Inland Revenue has issued Departmental Interpretation Practice notes:

  • Note 45, which deals with transfer pricing and double taxation agreements
  • Note 46, with deals with transfer pricing methodologies and related issues
  • Note 48, which deals with advanced pricing agreements

Transfer Pricing Methods

The Inland Revenue (IRD) allows for the use of the following transfer pricing methods:

  • Traditional Transaction Methods:
    • Comparable uncontrolled price method
    • Resale price method
    • Cost-plus method
  • Transactional Profits Methods:
    • Profit split method
    • Transactional net margin method
  • Other methods which satisfy the arm’s-length principle

In general, Hong Kong tax authorities prefer the Traditional Transaction Methods.

Use and Availability of Comparables

The IRD does not provide specific advice on the use or availability of comparable information. Local comparables are generally preferred, but regional comparables are accepted as well in the absence of sufficient local information. Comparable information can be used from various databases, including the Bureau van Dijk Electronic Publishing SA's OSIRIS database.