Drilling down on tax
His comments extracted from the article:
“In PN16, if it is noted that the overseas related party is merely the legal owner of the intangible, and is making no contribution to value creation, the royalty is nondeductible,” he says. Comparing PN16 with corresponding OECD actions, Tam sees the Chinese model as stricter.
“On the other hand, Actions 8, 9 and 10 would attribute some value to the legal ownership,” he adds, referring to three points of the OECD BEPS Action Plan that relate to a number of closely related topics, including rules to prevent transfer risks or allocating excessive capital; engaging in transactions which would not, or would only very rarely, occur between third parties.
One aspect likely to affect Hong Kong companies is intellectual property.
“It is not uncommon that IP rights are owned by Hong Kong entities,” notes Tam. “[But] questions remain whether payment for such service fees would be deductible”.
“APAs are effective tools to minimize tax controversies and disputes,” says Anthony Tam, a Tax Partner at Mazars and Convenor of the Institute’s Mainland Taxation Sub-committee. “It provides certainty on a tax position.”
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Credits: George W. Russell for A+ Magazine, July 2015 issue