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November 10, 2021

OECD releases Hong Kong Stage 2 peer review report on implementation of Action 14 minimum standard

Executive summary

On 18 October 2021, the Organisation for Economic Co-operation and Development (OECD) released the Stage 2 peer review reports of Hong Kong relating to the outcome of the peer monitoring of the implementation of the Base Erosion and Profit Shifting (BEPS) minimum standard under Action 14 on improving tax dispute resolution mechanisms (Action 14 minimum standard). Stage 2 focuses on monitoring the follow-up of any recommendations resulting from Hong Kong’s Stage 1 peer review report.1

Overall, Hong Kong meets most of the elements of the Action 14 minimum standard. Where it has deficiencies, Hong Kong has worked to address some of them, which has been monitored in Stage 2 of the process. The Stage 1 peer review report identified that some of the Comprehensive Double Taxation Agreements (CDTAs) that Hong Kong concluded are not in line with one or more elements of the Action 14 minimum standard. While these CDTAs are not yet updated as of today, it is expected that they will be modified to include the Action 14 minimum standard through the ratification of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). Hong Kong indicated that Mainland China expects the ratification process of the MLI to be finalized during 2021.2

Detailed discussion


In October 2016, the OECD released the peer review documents (i.e., the Terms of Reference and Assessment Methodology) on Action 14 which form the basis of the Mutual Agreement Procedure (MAP) peer review and monitoring process under BEPS Action 14.

The Terms of Reference translate the minimum standard approved into a basis for peer review, consisting of 21 elements complemented by 12 best practices. The Terms of Reference assess a Member’s legal and administrative framework, including the practical implementation of this framework to determine how its MAP regime performs relative to the 21 elements in four key areas: (i) preventing disputes; (ii) availability and access to MAP; (iii) resolution of MAP cases; and (iv) implementation of MAP agreements.

The Assessment Methodology establishes detailed procedures and guidelines for a two-stage approach to the peer review and monitoring process. Stage 1 involves the review of a Member’s implementation of the minimum standard based on its legal framework for MAP and the application of this framework in practice. Stage 2 involves the review of the measures taken by the Member to address any shortcomings identified in its Stage 1 peer review. In light of the above, the OECD has also released a schedule for Stage 1 of the peer review and a questionnaire for taxpayers. The schedule catalogues the assessed jurisdictions into 10 batches for review.

Both of these stages are desk-based and are coordinated by the Secretariat of the Forum on Tax Administration’s (FTA) MAP Forum.In summary, Stage 1 consist of three steps or phases:

  • Obtaining inputs for the Stage 1 peer review

  • Drafting and approval of a Stage 1 peer review report

  • Publication of Stage 1 peer review reports

Input is provided through questionnaires completed by the assessed jurisdiction, peers (i.e., other members of the FTA MAP Forum) and taxpayers. Once the input has been gathered, the Secretariat prepares a draft Stage 1 peer review report of the assessed jurisdiction and sends it to the assessed jurisdiction for its written comments on the draft report. When a peer review report is finalized, it is sent for approval of the FTA MAP Forum and later to the OECD Committee on Fiscal Affairs (CFA)’ to adopt the report for publication.

For Stage 2, there are two steps or phases: (i) approval of Stage 2 peer monitoring report of an assessed jurisdiction; and (ii) publication of Stage 2 peer review reports. More specifically, an assessed jurisdiction should within one year of the adoption of its Stage 1 peer review report by the CFA submit a detailed written report (Update Report) to the FTA MAP Forum. The Update Report should contain: (i) the steps that the assessed jurisdiction has taken or is taking to address any shortcomings identified in its peer review report; and (ii) any plans or changes to its legislative or procedural framework relating to the implementation of the minimum standard. Members of the FTA MAP Forum should also provide their comments on the Update Report provided by the assessed jurisdiction. Based on the Update Report submitted by the assessed jurisdiction and the input from the peers, the Secretariat will revise the Stage 1 peer review report of the assessed jurisdiction with a view to incorporate these updates in the Stage 2 peer monitoring report of the assessed jurisdiction. After adoption from the CFA, the Stage 2 peer monitoring report will be published.

Minimum standard peer review reports

The report is divided into four parts, namely:

  • Preventing disputes

  • Availability and access to MAP

  • Resolution of MAP cases

  • Implementation of MAP agreements

Each part addresses a different component of the minimum standard.

Overall, Hong Kong is addressing the shortcomings identified in its Stage 1 peer review report.

Preventing disputes

Hong Kong meets the Action 14 minimum standard concerning the prevention of disputes. It is seen to have a modest CDTA network with 45 CDTAs in place and has an established MAP program. Forty-three of the CDTAs are covered in the Stage 2 peer review.

All of Hong Kong’s 43 CDTAs contain a provision equivalent to Article 25(3), first sentence, of the OECD Model Tax Convention (OECD MTC 2017) requiring their competent authority to endeavor to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the CDTA. Inclusion of this sentence in tax treaties invites and authorizes competent authorities to solve these cases, which may avoid submission of MAP requests and/or future disputes from arising, and which may reinforce the consistent bilateral application of tax treaties.

In addition, Hong Kong has implemented a bilateral Advance Pricing Arrangement (APA) program and guidance on the program is documented in the Departmental Interpretation and Practice Notes No. 48. The relevant provision of the domestic tax law of Hong Kong provides that the Commissioner of Inland Revenue may consider the roll-back of an APA to prior years subject to the statutory time limits for amending the tax assessment, where the facts and circumstances in the prior years are the same as those for the APA. The “roll-back” of an APA to these previous filed years may be helpful to prevent or resolve potential transfer pricing disputes.

During the period from 1 January 2019 to 31 July 2020, Hong Kong received three bilateral APA requests, one of which included a request for roll-back. These APA requests are still under consideration. Further to the above, Hong Kong also reported that for the two roll-back requests that it received in the Stage 1 reporting period of 1 January 2016 to 31 December 2018, the APA applicants were asked to provide information to support the roll-back requests and their replies are pending. As roll-back has not yet been granted, the effective implementation of this element in practice is yet to be evaluated.

Availability and access to MAP

Hong Kong also meets the Action 14 minimum standard concerning the availability and access of MAP. It provides access to MAP in all eligible cases (including transfer pricing cases, application of anti-abuse provisions, audit settlements and when required information is submitted).

Areas for improvement

The Stage 2 peer review report noted that a MAP case identified in the Stage 1 peer review report that was not yet resolved. This involved a multinational enterprise (the Taxpayer) which considered itself being denied access to MAP by the Inland Revenue Department (IRD), the competent authority of Hong Kong.

Hong Kong clarified in the Stage 1 peer review report that the IRD was concerned about the residence of the Taxpayer and considered that it is required to ascertain the residence of the Taxpayer before further processing the MAP request. The Taxpayer has not been denied access to MAP and the relevant MAP case has been included in its MAP inventory, which shows that the request is still under consideration by Hong Kong.

During Stage 2 peer review, Hong Kong reported that it has taken positive steps to resolve the relevant MAP case and has reached an in-principle agreement on the terms of settlement with the Taxpayer. Hong Kong anticipated that the case could be resolved unilaterally through domestic remedy pursuant to the agreed settlement, and therefore a MAP discussion with the relevant competent authority may not be necessary.

Regarding the respective MAP case, the relevant peer clarified that it was not contacted by Hong Kong and there were no developments since March 2018 when it was informed by Hong Kong that the Taxpayer’s request for arbitration was considered as inappropriate and that a better and more complete reply would be sent at a later point. In this respect, this peer stressed that it has not received an official letter clearly confirming that the competent authorities started the MAP procedure and are actually in MAP discussions.

The Stage 2 peer review report thus recommends that Hong Kong should ensure that, in instances where a taxpayer has met the requirements which allows such a taxpayer to request a MAP irrespective of the remedies provided by the domestic law of the CDTA partners, it should effectively communicate with its CDTA partner in order for the taxpayer to gain effective access to MAP.

Furthermore, the Stage 2 peer review report noted that a few of Hong Kong’s CDTAs are not in line with one or more elements of the Action 14 minimum standard:

  • One of the CDTAs put forward a period lower than the three years prescribed in the OECD MTC during which the taxpayer may file a MAP request after the first notification of the action resulting in taxation not in accordance with the provisions of the CDTA.

  • Two of the CDTAs do not contain a provision under which competent authorities may consult together for the elimination of double taxation in cases not provided for in their CDTAs.

It is expected the above CDTAs will be modified by the MLI upon its entry into force.

Provide access to MAP if required information is submitted and clear MAP guidance

MAP cases submitted that required additional information were not denied access, and taxpayers were afforded opportunities to provide the missing information. In cases where a MAP request does not include the required information, or additional information is considered necessary, Hong Kong reported that the IRD will ask the taxpayer to submit the information within two months after being asked to do so. Hong Kong may also accept an extension where appropriate. Hong Kong’s MAP guidance is publicly available on the IRD’s website.4

Resolution of MAP cases

Hong Kong meets the Action 14 minimum standard concerning the resolution of MAP cases. Hong Kong’s competent authority operates fully independently from the audit function of the tax authorities. Its organization is considered adequate and the performance indicators used are considered appropriate to perform the MAP function.

Average time to close MAP cases

The average time needed for Hong Kong to close MAP cases during the period from 1 January 2016 to 31 December 2019 are shown in the table below:


Number of cases

Start date to end date (in months)

Transfer pricing cases



Other cases



All cases




Transfer pricing cases are MAP cases where the taxpayer’s MAP request relates to either:

  • The attribution of profits to a permanent establishment (see e.g., Article 7 of the OECD MTC 2017); or

  • The determination of profits between associated enterprises (see e.g. Article 9 of the OECD MTC 2017).

Any MAP case that is not a transfer pricing MAP case is considered as an "other" MAP case.

While the average time of 16.92 months to close MAP cases during the 2016 to 2019 period is below the Action 14 minimum standard's recommended target of 24 months, it is slightly longer than the 14.33 months identified during the statistics reporting period in the Stage 1 peer review report. While the MAP caseload has significantly increased since 1 January 2016, this may also indicate that the IRD is not adequately resourced to cope with this increase.

Outcomes of closed MAP cases

During the period from 1 January 2016 to 31 December 2019, Hong Kong closed 11 MAP cases, out of which 8 were transfer pricing cases. The outcomes for these cases are shown in the table below:

MAP outcome

Denied MAP access

Objection is not justified

Withdrawn by taxpayer

Unilateral relief granted


Transfer pricing cases






Other cases












Areas for improvement

The Stage 2 peer review report also noted that one peer expressed a concern that the IRD may not be adequately resourced since the peer found some delays in setting a meeting and receiving a position paper from the IRD.

Hong Kong responded that while the time taken on the relevant MAP case was longer than expected (nonetheless still within the timeframe of 24 months), it was wholly attributable to some exceptional circumstances and it has no correlation with the adequacy of resources within the IRD. It clarified that as the case concerned multiple years back to 2012, it had spent considerable time to gather the necessary information from the relevant taxpayer.

The Stage 2 review report recommends that Hong Kong should closely monitor whether its recent addition of new staff to handle MAP cases will allow them to cope with the increase in the number of MAP cases. More resources should be added where necessary.

Implementation of MAP agreements

As Hong Kong did not reach any MAP agreements that required implementation in Hong Kong during the period from 1 January 2019 to 31 July 2020, it was not possible to assess whether Hong Kong meets the Action 14 minimum standard with respect to the implementation of MAP agreements.

Areas for improvement

Two of the CDTAs neither contain a provision that is equivalent to Article 25(2), second sentence, of the OECD MTC that any mutual agreement reached through MAP shall be implemented notwithstanding any time limits in their domestic law, nor both alternative provisions by setting a time limit in Article 9(1) and Article 7(2) for making adjustments to avoid late adjustments obstruct granting of MAP relief.

One of the CDTAs will be modified by the MLI upon its entry into force; and the other CDTA is expected to be modified by the MLI once the CDTA partner has amended its notifications to withdraw its reservation under the MLI.


The outcomes of closed MAP cases reported in the Stage 2 peer review report show that almost half of the MAP cases were granted unilateral relief by the IRD to resolve double taxation, which is an encouraging statistic. In addition, there is recognition that there needs to be an increase in appropriately skilled resources allocated by the IRD to handle MAP cases which in theory should help reduce the average time to close MAP cases; efficiency represents an appealing factor for taxpayers to pursue MAP where available.

The relevance of this in a post-BEPS world, where multinational enterprises (MNEs) face increasing pressures and scrutiny from tax authorities, is the reinforced importance of having effective dispute resolution mechanisms which for taxpayers, minimize the scope for double taxation. The release of Hong Kong’s Stage 2 peer review report represents the continued recognition and importance of this and the need to achieve tax certainty on cross-border transactions for MNEs.

For taxpayers with Hong Kong operations, the combination of a transfer pricing framework which facilitates MAPs together with the practical consequences of a peer review and in particular the healthy pressure which a peer review can exert, should give taxpayers increased comfort that the MAP represents a viable process for obtaining relief for double taxation in Hong Kong.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Services Limited, Hong Kong

Ernst & Young LLP (United States), Hong Kong Tax Desk, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago



  1. See EY Global Tax Alert, OECD releases Hong Kong's Stage 1 peer review report on implementation of BEPS Action 14 minimum standard, dated 9 December 2019.

  2. As Hong Kong is a special administrative regime of Mainland China, the MLI position taken by Hong Kong was submitted by Mainland China on behalf of Hong Kong.


  4. The MAP guidance of Hong Kong, China is published and can be found at: