In our August 2022 Issue of Newsletter, we will study three points for attention in the latest development of Hong Kong Transfer Pricing Documentation Requirements.
1. Form IR1475 - A Summary of Transfer Pricing Master File and Local File
Taxpayers are requested to submit Form IR1475 within one month from the IRD’s request
In the Annual Meeting between Hong Kong Institute of Certified Public Accountants (“HKICPA”) and the Inland Revenue Department (“IRD”), HKICPA representatives commented that it may be difficult for the Hong Kong taxpayers to gather some of the information requested in the Form IR1475 if the Master File is prepared by overseas ultimate parent company. They also consider that some of the information requested in the Form IR1475 is more than the requirements of the Master File. Lastly, they would like to clarify the selection criteria for the 5 most important financing and service transactions.
The IRD replied that the Form IR1475 is designed to determine whether a proper Master File and Local File has been maintained by the taxpayer and to assess the level of the transfer pricing risk.
For the 5 Most important financing and service agreements between constituent entities of the group, the IRD clarified that it is determined based on Monetary Value, irrespective of the place of tax residency of the entity and service nature.
Points to note
Based on our experience, it would generally involve significant amount of effort for the Hong Kong office to liaise with overseas headquarters to complete the Form IR1475. The information requested in the Form are substantial and often involved information not related to the Hong Kong entity of the Group.
On the other hand, the IRD is rather hesitated to grant extension to file Form IR1475. As such, it is recommended that taxpayers with significant amount of related party transactions with various overseas group companies to prepare the Form IR1475 together with the Transfer Pricing Master File, Local File and Form IR1475 before the preparation deadline (i.e., 9 months after the accounting year-end of the taxpayer).