Asia-Pacific Transfer Pricing Handbook

Chapter Nine

Hong Kong Challenges Abusive Tax Schemes

The Hong Kong Government is taking action to challenge abusive tax schemes. The government issued its transfer pricing guidelines during December 2009 for the purpose of specifically curtailing the transfer pricing facets of these abusive tax schemes. The Hong Kong government, in promulgating these anti–tax abuse rules, specifically recognizes that taxpayers do design and employ such reinvoicing schemes and similar devices. Some taxpayers have been conjuring up reinvoicing schemes deliberately to confront and to obfuscate transfer pricing head on. The Hong Kong transfer pricing provisions provide significant anti–tax avoidance provisions to counteract these abusive practices through its transfer pricing regime. In this regard, the reader is well advised to examine Chapter 10, Winning Hong Kong’s Landmark Transfer Pricing Case, the Ngai Lik case.

Transfer pricing guidelines are exceedingly forthright as to abusive tax schemes and the remedies to these schemes the Hong Kong Inland Revenue would pursue. Hong Kong’s reaction to these tax schemes is unique. Most other governments go to great lengths to avoid providing full descriptions of the guideposts in which tax havens and other abusive tax schemes operate. These governments fear that they could be giving a road map to ultra-aggressive taxpayers by providing such tax scheme technology. Hong Kong eschews that approach, and its forthright anti–tax haven provisions within the transfer ...