Hong Kong Clarifies Rule on Double Tax Relief

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HONG KONG, May 18 – The Hong Kong Inland Revenue Department has released details on Departmental Interpretation and Practice Notes No.45- “Relief from Double Taxation due to Transfer Pricing or Profit Reallocation Adjustments” (DIPN45) last April 30.

The DIPN45 clarifies the procedure for companies wanting to seek double tax relief for transfer pricing or profit reallocation adjustment following the  Double Taxation Agreement (DTAs). Hong Kong has signed DTAs with other tax jurisdictions with the purpose of avoiding double taxation.

Under the DTAs, there are two types of international double taxation: the economic double taxation and the juridical double taxation.

The economic double taxation occurs when two companies residing in different states are taxed on the same income without relief provided by either state for tax imposed by the other.

Juridical double taxation on the other hand happens when a company is taxed on the same profit or income in two different states without one providing tax relief for the other. One  example is when a company with a head office in its country of residence also has a permanent establishment in another country.

The DIPN45 also details procedure should Hong Kong SAR not have a double taxation agreement with the concerned overseas tax jurisdiction.

For a copy of the DIPN45, click here.