The global tax environment is changing, ushering in an era of transparency and a combined international effort against global non-taxation. We have also seen the Inland Revenue Department (IRD) adopting initiatives to counter Base Erosion Profit Shifting (BEPS) activities and taking a more conservative and stringent approach during their review in the past few years. This means that Hong Kong taxpayers are facing enormous pressure from the IRD to justify their tax filing position.
There has been unprecedented surge in tax disputes in recent years involving technical issues and/or disagreement about the facts. Some of these cases have led to tax audits or investigations, and some involve tax exposures both locally and overseas. Large or multinational taxpayers are not the only ones affected – small and medium-sized enterprise taxpayers and even tax-exempt charities are also under increased scrutiny.
To address these changes in the tax landscape, PwC Tax Controversy and Dispute Resolutions Services (TCDR) offer a wide range of services to help taxpayers navigate their way through issues that have been challenged by the IRD.
The core TCDR team includes former IRD officers with over 30 years' experiences in dispute resolution, transfer pricing experts and specialists with litigation skills. The team also collaborate with different specialist groups within the PwC global network to assist taxpayers in the resolution of cross-border tax controversial issues and disputes.
In the tax controversy cycle, TCDR team can help taxpayers prevent, manage and resolve their tax controversies and disputes.
Core service offerings
Prevent
We identify and mitigate potential tax controversy risks and exposures by:
- aligning commercial substance in order to obtain Hong Kong tax resident certificate and enable taxpayers to apply and enjoy treaty benefit claims or protection,
- advising on preparation of necessary legal documents to substantiate the tax filing position,
- assisting in the preparation of operation manual, and
- helping taxpayers apply for an Advance Ruling or Advance Pricing Agreement.
Manage
We can conduct regular reviews of the business operations, with reference to the most up-to-date tax regulatory and practical environment, to help taxpayers manage their potential tax controversy risks and exposures:
- conducting a periodic run through on tax controversy risk parameters to identify possible tax controversy risks,
- running a fully fledge compliance test to ensure the taxpayer is meeting their obligations within the evolving BEPS actions internationally,
- simulating a detailed tax audit run based on IRD approach to ensure taxpayer is well prepared for the audit,
- conducting post restructuring implementation review, and
- assisting in the preparation of defence files for any possible tax disputes.
Resolve
We take a proactive approach to assist taxpayers in resolving tax disputes with IRD as soon as possible:
Domestic tax disputes, including tax audits and investigations
- Hong Kong corporate and individual tax disputes
- With experienced former IRD officers in the TCDR team, we enable taxpayers to understand what it takes to resolve the dispute.
- In disputes over technical issues, we assess the merits of the arguments and supporting evidences.
- In tax audits and investigations, we guide taxpayers through every step of the process.
- If necessary, we assist taxpayers in preparing for litigation with the IRD.
- Transfer pricing
- We help to resolve transfer pricing (TP) disputes with the IRD together with our TP expert team.
- Financial services
- We help resolve financial services (FS) disputes (e.g. asset management tax audits) together with our FS expert team.
Treaties and cross-border tax controversy
- We assist taxpayers to substantiate and negotiate with tax authorities to obtain treaty protection or treaty benefits when challenge.
- If overseas tax have been paid for the same income, we assist the taxpayer in obtaining a foreign tax credit or refund in Hong Kong.
- When transfer price adjustments have been made by overseas jurisdictions, we assist the taxpayer in claiming corresponding transfer price adjustments or tax refund in Hong Kong.
- We assist taxpayers to initiate Mutual Agreement Procedures (MAP) under the treaty to resolve issues in application of tax treaties, including cross-border transfer pricing disputes.
- We help to resolve China/Hong Kong treaty disputes together with our China TCDR teams (which include former SAT officials).
Tax appeals and litigations
- We assist taxpayers to resolve tax disputes handled by the IRD Appeal Section.
- We advise on appeal and litigation procedures and help assess whether litigation is appropriate.
- We assist taxpayers in the process of appealing to the Board of Review, including the preparation of necessary documentation for the appeal and representing taxpayers at the hearing.
- We assist taxpayers in assessing the merits in appeal beyond the Board of Review.
Other tax controversies
- We assist in other tax matters and disputes (e.g. objections, advance rulings, tax-exempt charities, etc.) that require dispute resolution and liaison with the IRD through our TCDR / ex-official experience and network.
Insights
Prevention is always better than cure. A thorough understanding of the recent tax landscape in Hong Kong is essential for taxpayers to minimise their tax controversy risks. Our subject matter expert regularly share insights on how to prevent, manage and resolve tax controversies and disputes.
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