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Asia-Pacific Transfer Pricing Handbook by Margaret Kent, Robert Feinschreiber

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Chapter Ten

Winning Hong Kong’s Landmark Transfer Pricing Case

Hong Kong had its first transfer pricing case, Ngai Lik Electronics Company Limited v. the Hong Kong Commissioner of Inland Revenue,1 in 2008. This case sheds light on Hong Kong’s judicial process in the transfer pricing context. Most importantly, the case examines sourcing and agency issues before the court addresses transfer pricing issues. We can expect the taxpayer and the Hong Kong Commissioner of Inland Revenue to continue to square off in the years to come.

NGAI LIK LITIGATION

The case at bar has had many gyrations, both in the Hong Kong administrative tax system and in the courts. The Hong Kong Commissioner of Inland Revenue brought an assessment against taxpayer, Ngai Lik Electronics Co. Limited, for five taxable years, 1991–1992 through 1995–1996. The taxpayer contested the Inland Revenue assessment before the Board of Review. The Board dismissed the taxpayer’s appeal but stated a case on a question of law for the Court of First Instance in this way: “Whether, on the facts bound by the Board, the Board erred in law by concluding that the Taxpayer and the other participants in the Scheme entered into or carried out the Scheme for the dominant purpose of enabling the Taxpayer to obtain a tax benefit?”

The Court of First Instance dismissed the taxpayer’s appeal, and the case went before the Court of Appeal. The Court of Appeal then rejected the taxpayer’s appeal,2 and the taxpayer brought an appeal before the ...

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