TAX NEWS - DECEMber 2009

Tax News: Belarus Tax, Russia Tax, Kazakhstan Tax, Hong Kong Tax, OECD Tax

Belarus, Kazakhstan and Russia – The presidents of Belarus, Kazakhstan and Russia have signed documents on the foundation of a Customs Union that will come into force on 1 January 2010 and that will create various opportunities for the member countries: they will be able to trade freely between each other, new jobs will be created and country market competition will be increased.

Hong Kong – On 4 December 2009, the Hong Kong Inland Revenue Department (IRD) issued Departmental Interpretation and Practice Notes No. 46, the widely anticipated guidance on transfer pricing. Although a DIPN issued in May 2009 (DIPN 45) deals with double taxation relief under tax treaties/tax arrangements when a transfer pricing adjustment has been made by another contracting state, DIPN 46 is the first practice note to provide the IRD's own view on transfer pricing matters.

Also on 4 December, the IRD issued a revised DIPN 21 to reflect the IRD's current assessing practice and to take account of recent court decisions with regard to determining the locality of profits. Because Hong Kong operates a territorial tax system, the locality of profits is an essential criterion in determining whether profits derived from a trade, profession or business are subject to Hong Kong profits tax. Revised DIPN 21 supersedes the DIPN issued in March 1998.

OECD – On 24 November 2009, the OECD released for public comment a revised draft of article 7 (Business Profits) of the OECD Model Treaty, as well as related Commentary changes and consequential changes to other parts of the model. Article 7 discusses the attribution of business profits to permanent establishments. The OECD Committee on Fiscal Affairs has requested comments on the draft by 21 January 2010. It is expected that the revisions will be included in the next update to the OECD Model Treaty, which is anticipated to be published towards the end of 2010.