Transfer Pricing: Rules and Practice in Selected Countries (H-I) (Portfolio 6955)

Tax Management Portfolio, Transfer Pricing: Rules and Practice in Selected Countries (H–I), No. 6955, presents the rules and practice related to transfer pricing in Hong Kong, India, Ireland, and Italy.

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Chapter 70, “Transfer Pricing Rules and Practice in Hong Kong,” provides an overview of the Hong Kong Inland Revenue Department's transfer pricing administrative practice guidance and its interaction with Hong Kong's sourcing rules for taxation.

Chapter 75, “Transfer Pricing Rules and Practice in India,” gives the reader a basic understanding of the transfer pricing legislation and regulations in India. Indian transfer pricing rules are broadly based on the OECD's Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, with some deviations, such as applying single-year data and using an arithmetic mean (rather than a range). The chapter also discusses compliance requirements, and the audit process, dispute resolution mechanisms, and Competent Authority relief and procedures. In connection with the discussion of the audit process, the chapter also considers the typical positions taken by Indian Transfer Pricing Officers on certain transfer pricing issues.

Chapter 80, “Transfer Pricing Rules and Practice in Ireland,” provides an overview of the Irish tax system and of Ireland's transfer pricing regime, which took effect for accounting periods commencing on or after January 1, 2011. In addition, the chapter briefly summarizes Ireland's tax audit, appeals, and litigation processes. Finally, the chapter discusses Ireland's treaty network and procedures for preventing double taxation.

Chapter 85, “Transfer Pricing Rules and Practice in Italy,” provides an overview of the Italian tax system and administration and analyzes the main Italian transfer pricing rule, contained in Article 110(7) of the Income Tax Code, as it has been interpreted and applied over the years, under the growing influence of the OECD Transfer Pricing Guidelines. The chapter also highlights developments in the application of transfer pricing rules to domestic transactions and analyzes specifically the transfer pricing issues applicable to selected transactions, together with the growing administrative practice and case law.


The Transfer Pricing: Rules and Practice in Selected Countries (H–I) Portfolio is authored by the following experts.
Patrick Cheung

Patrick Cheung is the Transfer Pricing leader of Ernst & Young's Hong Kong and South China Transfer Pricing Services practice as well as the Hong Kong Financial Services Transfer Pricing Leader. Cheung has over 13 years of international tax and transfer pricing experience, including work on many Advance Pricing Agreements, Competent Authority proceedings, and tax-effective supply chain management projects. He is a qualified Certified Management Accountant (CMA).

Luis Coronado

Luis Coronado is Ernst & Young's Far East Area and Greater China Transfer Pricing Services Leader. Coronado has over 15 years of advisory experience in international tax and transfer pricing issues, initially serving domestic and multinational companies in the Americas and Europe before moving to Asia in 2005. His experience includes advising companies with respect to bilateral Advance Pricing Agreements and Competent Authority proceedings involving China, Japan, Mexico, and the United States. Coronado is a member of the International Fiscal Association and has been voted numerous times into Euromoney's Guide to the World's Leading Transfer Pricing Advisers.

Samir Gandhi

Samir Gandhi, with over 20 years of experience in the fields of direct tax and transfer pricing, heads up Deloitte's transfer pricing group in India. He is also present at and holds regular discussions with the Expert Group on Transfer Pricing/Policy Makers formed by the Government of India. Mr. Gandhi has been recognized as a leading transfer pricing advisor in India by the Euromoney Legal Media Group and World Tax 2009, and his articles have been published in the BNA Transfer Pricing Report, the International Tax Review, the Japan Taxation Journal, and leading Indian financial dailies. He has a Bachelor of Commerce degree from the University of Mumbai.

Minal Sharma

Minal Sharma is a part of the Deloitte India team with significant experience advising clients on transfer pricing matters. She worked for over four years in the Firm's Corporate and International Tax practice and in June 2006 moved to the Firm's Transfer Pricing practice. Ms. Sharma has a Bachelor of Commerce degree from the University of Mumbai and qualified as a Chartered Accountant in 2001.

Rakesh Alshi

Rakesh Alshi, with over 10 years experience in the fields of Transfer Pricing and International Tax, is a part of the Deloitte India team. Mr. Alshi worked in Deloitte's Chicago office for more than a year and has been involved with Deloitte's U.S., U.K., Australian, and other offices. Prior to joining Deloitte, he was a Senior Manager — Taxation with Kvaerner Cementation India Limited, a multinational corporation, and was the head of its Foreign Exchange and Tax Department. Mr. Alshi has contributed articles on transfer pricing and international taxation to Economic Times, Financial Express, Kokusai Zhimo (Japan), and publications of Bloomberg BNA, Arlington, Va. He has a Bachelor of Commerce degree from the University of Mumbai.

Sanford W. Stark, Esq.

Sanford W. Stark, B.A., cum laude, Yale University; J.D., with High Honors, Duke University School of Law; Member, Alaska Law Review and Moot Court Board; Law Clerk to the Honorable Peter Hill Beer, U.S. District Court for the Eastern District of Louisiana; Trial Attorney, U.S. Department of Justice Tax Division, Civil Trial Section; Adjunct Professor, LL.M. (Taxation) program, Georgetown University (“Introduction to Transfer Pricing”) (2009–); Member, American Bar Association, Section on Taxation, Transfer Pricing Committee, Foreign Activities of U.S. Taxpayers Committee; Member, bars of the District of Columbia and Illinois.

J. Clark Armitage, Esq.

J. Clark Armitage, B.A., American University; J.D., George Washington University; Mr. Armitage served most recently as Deputy Director of the IRS APA Program. Among other duties during his eight years with the Program, Mr. Armitage was a Branch Chief, supervising as many as ten APA Team Leaders, and a Team Leader, handling dozens of cases. He also served as Coordinator for the financial products, pharmaceutical/medical device and auto/auto parts industry groups, was detailed for several months to manage a group of U.S. Competent Authority analysts, and participated in the LMSB Transfer Pricing Task Force, which brought together senior managers from across the IRS to make recommendations for improved transfer pricing enforcement and compliance; Adjunct Professor, LL.M. (Taxation) program, Georgetown University (“Introduction to Transfer Pricing”) (2013–); Member, bars of the District of Columbia and Maryland.

Saul Mezei, Esq.

Saul Mezei, B.A., magna cum laude, University of Baltimore; J.D., cum laude, Order of the Coif, Benjamin N. Cardozo School of Law; LL.M., with distinction, Dean's List, Georgetown University Law Center; Law Clerk to the Honorable Robert A. Wherry, Jr., United States Tax Court; Adjunct Professor, LL.M. (Taxation) program, Georgetown University (“The Life of a Tax Controversy”) (2010–), (“Introduction to Transfer Pricing”) (2013–); Member, American Bar Association, Section on Taxation; Member, Federal Bar Association Section of Taxation; Member, J. Edgar Murdock American Inn of Court; Member, bars of the District of Columbia, Maryland, and New York.

Carlo Galli

Carlo Galli was admitted as a CPA in 1996. After having worked with the International Bureau of Fiscal Documentation (IBFD), he joined Maisto e Associati in 1995 and was a partner from 2003 to 2008. From 2009 he heads the tax practice of Clifford Chance in Italy. Mr. Galli specializes in tax planning for multinational groups, M&A transactions, and capital markets.

Table of Contents

Portfolio 6955-1st: Transfer Pricing: Rules and Practice in Selected Countries (H-I)

Portfolio Description


Technical Advisors


Significant Developments

Significant Developments



Administrative Developments

Hong Kong Issues Guidance on APA Program


Administrative Developments

CBDT Finalizes Transfer Pricing Safe Harbor Rules

CBDT Instruction Publishes Criteria for Selection of Taxpayer Returns for Audit

CBDT Rescinds Guidance on Use of Profit Split Method for Transactions Involving Intangibles

CBDT Revises Guidance on Contract Research and Development Service Providers

CBDT Expands Transfer Pricing Reporting Requirements

Department of Revenue Issues Notification Narrowing Arm's-Length Range

CBDT Issues Guidance on APA program

India Amends Transfer Pricing Rules to Include Sixth Method


Micro Inks Ltd. v. ACIT

Nimbus Communications Ltd. v. ACIT

Income Tax Officer v. Right Florist Pvt. Ltd.

GAP International Sourcing (India) Private Ltd. v. Asst. Comr. of Income Tax

LG Electronics (India) Pvt. Ltd. v. Asst. Comr. of Income Tax



Administrative Developments

Circular on Application of Mutual Agreement Procedures

Bulletin on Advance Pricing Agreement Procedure


Supreme Court Renders Decision on Deductibility of Royalty Payments Made to U.S. Parent

Detailed Analysis

CHAPTER 70: TRANSFER PRICING RULES AND PRACTICE IN HONG KONG by Patrick Cheung and Luis Coronado Ernst & Young People's Republic of China

70:I. Introduction

A. DIPN 46

B. Background to Hong Kong's Economic Environment

70:II. Overview of Hong Kong's Tax System

A. Basis of Taxation on Profits

B. Profits Tax

C. Tax Treaty Network

D. Exchange of Information

70:III. History of Hong Kong's Transfer Pricing Rules

70:IV. The Transfer Pricing Rules of Hong Kong

A. Overview

1. Applicable Tax Legislation and Statutory Rules

2. DIPN 44 (Revised)

3. DIPN 45

4. DIPN 46 and DIPN 21 (Revised)

B. Definition of Related Parties or “Closely Connected Persons”

C. Transfer Pricing Rules for Different Types of Transactions

1. Tangible and Intangible Property

2. Services

3. Permanent Establishments

4. Cost-Sharing Arrangements

D. Data Sources Commonly Used in Hong Kong

70:V. How the Transfer Pricing Rules of Hong Kong Differ from the OECD Transfer Pricing Guidelines

70:VI. Reporting and Documentation Requirements

70:VII. Penalties

70:VIII. Transfer Pricing Audits in Hong Kong

70:IX. Administrative Appeals of Transfer Pricing Adjustments

70:X. Litigation

70:XI. Resolving Conflicts with Other Countries

70:XII. Advance Pricing Agreements

CHAPTER 75: TRANSFER PRICING RULES AND PRACTICE IN INDIA  by Samir Gandhi, Minal Sharma, and Rakesh Alshi Deloitte, Mumbai, India

75:I. Introduction

A. General Overview of the Investment Climate

B. General Overview of the Tax System

75:II. The Transfer Pricing Legislation

A. History of the Legislation

B. Overview of the Legislation

75:III. The Transfer Pricing Regulations

75:IV. Burden of Proof

75:V. Methods

A. Most Appropriate Method Rule

B. Comparable Uncontrolled Price Method

C. Resale Price Method

D. Cost Plus Method

E. Profit Split Method

F. Transactional Net Margin Method

75:VI. Comparable Data

A. Tested Party

B. Availability of Comparable Data

C. Multiple-Year Data

D. Use of Overseas Data

75:VII. Arithmetical Mean vs. Range of Price

75:VIII. Contemporaneous Documentation

A. Legal Requirement

B. Nature of Documentation

75:IX. Tax Return Disclosure (Accountant's Report)

75:X. Penalties

Introductory Material

A. Adjustment to Transaction Price

B. Failure to Maintain or Submit Documentation

C. Failure to Submit Accountant's Report

75:XI. Transfer Pricing Audit Process

A. The Directorate for Transfer Pricing

B. Selection of Taxpayers for Audits

C. Review by the TPO

75:XII. Approaches Taken by TPOs in Transfer Pricing Audits

A. Services

1. Composition of Cost Base

2. High-End vs. Low-End Services

3. Application of Industry Rates

4. Captive Service Providers

B. Head Office Expenses

C. Manufacturers

D. Distributors

E. Intangibles

F. Location Savings

75:XIII. Appeals

A. In General

B. Alternative Dispute Resolution Mechanism

75:XIV. Competent Authority Relief

A. In General

B. Procedures for a MAP

75:XV. Advance Pricing Agreements

75:XVI. Benefit of Tax Holiday Under§ 10A

75:XVII. Conclusion

CHAPTER 80: TRANSFER PRICING RULES AND PRACTICE IN IRELAND by Sanford W. Stark, Esq. J. Clark Armitage, Esq. Saul Mezei, Esq. Bingham McCutchen LLP Washington, D.C.

80:I. Introduction

80:II. Overview of Ireland's Tax System

80:III. Overview of Ireland's Corporate Income Tax System

80:IV. History of Ireland's Transfer Pricing Rules

80:V. Ireland's Transfer Pricing Regime

A. Overview

B. Scope of Ireland's Transfer Pricing Rules

C. Definition of Related Party

D. Transfer Pricing Methods

E. Relationship between Ireland's Transfer Pricing Rules and Customs and VAT Rules

80:VI. How Ireland's Transfer Pricing Rules Differ from the OECD Guidelines

80:VII. Reporting and Documentation Requirements

80:VIII. Interest and Penalties

80:IX. Transfer Pricing Compliance Review Program

80:X. Transfer Pricing Audits in Ireland

80:XI. Administrative Appeals of Transfer Pricing Adjustments

80:XII. Litigation

80:XIII. Resolving Conflicts with Other Countries

80:XIV. Adjustments to Be Made in the Wake of a Transfer Pricing Adjustment

80:XV. Advance Pricing Agreements


85:I. Introduction

A. Statutes and Forms of Interpretation Under Italian Tax Law

B. Italian Tax Principles

1. Taxpayers Subject to Italian Tax Jurisdiction

2. Income Subject to Italian Tax Jurisdiction

3. Procedural Rules

C. History of Transfer Pricing Rules

85:II. Overview of Italian Transfer Pricing Rules

A. Transfer Pricing in Domestic Transactions

1. General

2. The Concept of “Normal Value”: Article 9(3) and 9(4) of the Income Tax Code

3. The “Benefit” Principle (Principio dell'Inerenza)

4. Due Diligence Obligation of Directors of Italian Company

B. Overview of Transfer Pricing in Cross-Border Transactions

C. Impact of OECD Guidelines on Italian Transfer Pricing Standards

85:III. Statutory Rules on Transfer Pricing (Article 110(7) ITC) and the Interpretation Thereof by the Italian Ministry of Finance (Circular No. 32/9/2267 of 22 September 1980 and Circular No. 42/12/1587 of 12 December 1981)

A. Resident Persons Involved

B. Foreign Persons Involved

C. Forms of Control

1. Control of Capital or Voting Rights

2. Other Forms of Control

D. Transactions Covered and Arm's-Length Considerations

1. Tangible Property

a. Comparable Prices

b. Resale Price Method

c. Cost-Plus Method

d. Customs Value

e. Alternative (Profit-Based) Methods

(1) General

(2) Profit-Split Method

(3) Comparable Profit Method

(4) Return on Capital

(5) Other Methods

2. Services

a. Characterization of Intragroup Services

b. Pricing of Intragroup Services

3. Use of Money

a. Relevant Transactions

b. Relevant Market

c. Loan Agreements Between Branch and Head Office

d. Waiver of Credits

e. Interest-Free Loans

(1) Civil Law Rules

(2) Consequences of Adjusting a Zero Rate of Interest

(3) Indirect Taxes

f. Thin-Capitalization Rules

g. Tax Treatment of Nondeductible Interest

h. Withholding Tax

4. Intangible Property

a. General

b. Evaluation Methodology

c. Form of the Consideration

d. Safe Harbors

e. Anti-Avoidance Principles in the 1980 Circular

85:IV. Cost-Sharing Arrangements

85:V. Documentation

Introductory Material

A. Content of the Adequate Documentation

1. The Masterfile

2. The National Documentation

3. Annexes

4. Special Documentation Requirements

B. Form and Maintenance of the Adequate Documentation

85:VI. Compliance and Litigation

A. Compliance

1. Assessment

2. Reporting

B. Litigation and Penalties

1. Litigation

2. Penalties and Interest

a. Penalties

b. Interest

c. Waiver of Penalties

85:VII. Summary of Case Law

Introductory Material

A. Choice of Method for Sale of Goods

B. Arm's-Length Consideration for Use of Intangibles

C. Use of Money

D. Miscellaneous

85:VIII. Dealing with the Italian Tax Authorities on Transfer Pricing Issues

A. Advance Rulings

B. Participation in APA Process

C. Refund Claims Following U.S.-Initiated Adjustments

D. Negotiated Settlements of Italian-Initiated Adjustments

85:IX. Practical Aspects of the Competent Authority Process

85:X. Information Reporting and Recordkeeping

A. The Effect of Italian Secrecy Rules

B. Practical Application of Exchange of Information Agreements

C. Taxpayer Defenses to Information Requests Made by Italian Tax Authorities

85:XI. Elimination of Double Taxation Under the EEC Convention 90/436/EC

85:XII. Hypothetical Case Studies Involving Italian Transfer Pricing Rules and Practice

A. Example of Italian Export to the United States

1. Determining Arm's-Length Consideration Where Italian Parent Retains Intangibles and Technology

2. Determining Value: Segregation Versus Incorporation of Royalties in the Sale Price

3. Agency Versus Distributorship

4. Safe Harbors and Internal Documentation of Arm's-Length Nature of Transfer Price

B. Example of U.S. Export to Italy

1. Determining Arm's-Length Consideration Where U.S. Parent Retains Intangibles and Technology

2. Determining Value: Segregation Versus Incorporation of Royalties in the Sale Price

3. Agency Versus Distributorship

4. Safe Harbors and Internal Documentation of Arm's-Length Nature of Transfer Price

Working Papers

Working Papers

Table of Worksheets


Worksheet 11 CBDT Explanation of Final Transfer Pricing Rules [Released 8/21/01]

Worksheet 12 India Audit Directive Implementing Transfer Pricing Law [Released by the Central Board of Direct Taxation, dated May 2003]

Worksheet 13 India Tax Appellate Tribunal's Ruling on PEs, Western Union [Decision No. 2006-TIOL-58-ITAT-DEL, dated 3/10/2006]

Worksheet 21 Revenue, Irish Tax &  Customs, Technical Guideline Section, “Guidance on Revenue Opinions on Classification of Activities as Trading” (2003)

Worksheet 22 Revenue, Irish Tax &  Customs, Code of Practice for Revenue Audit (relevant sections) (rev. Aug. 2011)

Worksheet 23 Revenue, Irish Tax &  Customs, Tax Briefing Issue 07 (“June 2010 Guidance Note”) (June 10, 2010)

Worksheet 24 Revenue eBrief No. 62/2012: Monitoring Compliance with Transfer Pricing Rules Contained in Part 35A TCA 1997 (November 26, 2012)

Worksheet 31 Italian Transfer Pricing System — Income Tax Code Excerpts



(Hong Kong)


Administrative Pronouncements



Legislative Materials

Administrative Pronouncements



Texts and Treatises


(Hong Kong)