Impact of International Tax Changes to Hong Kong and Its Reaction

To implement the minimum standards of the BEPS package promulgated by the OECD, the fundamental transfer pricing rules have been recently introduced in Hong Kong. These rules enshrine the arm’s length principle for transactions between associated persons and the attribution of profits to a non-resident person’s permanent establishment in Hong Kong in accordance with the authorized OECD approach (AOA). However, the application of AOA and other recommendations of the BEPS Project may result in different tax implications when compared with the long-standing territorial source principle of taxation in Hong Kong, which will be explored in this article.