The taxable income of Hong Kong firms operating on the Chinese mainland is expected to come under greater scrutiny.

PricewaterhouseCoopers, an international auditing firm, says the State Administration of Taxation will sign a new tax agreement with the Inland Revenue Department of Hong Kong requiring more stringent exchange of information.

Tax authorities in the Chinese mainland suspect many foreign firms are dodging taxes and repatriating profits out of China by buying high and selling low to related parties overseas.

In September, the government introduced much more comprehensive regulations on transfer pricing - the prices charged on transactions between overseas firms in China and their related parties abroad.

PricewaterhouseCoopers advises Hong Kong firms to sign advanced pricing agreements (APA) with mainland tax authorities, to reduce the incidence of problems.

The agreement will enable prices on future related-party transactions to be fixed to avoid the problem of selling low to, and buying high from, overseas partners.

(CRI.com November 1, 2004)