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.
2. Revised Transfer Pricing Form IR1475 issued in November 2021
The IRD is committed to revising Form IR1475 to align with OECD Guideline and taxpayers’ burden remain heavy
Despite the fact that Form IR1475 is supposed to be a summary of the Transfer Pricing Master File and Local File, we are aware that certain disclosures requested in Form IR1475 are not found in the Master File and Local File and thus additional effort and time is required to complete the Form IR1475.
In view of the above, in November 2021 edition of Form IR1475, the IRD relaxed certain disclosure requirements from the original edition:-
- Declare whether the Master File and Local File are prepared within 9 months after the accounting year-end date instead of providing the specific date of preparation;
- Declare whether the amount of the controlled transactions exceed the respective transfer pricing threshold instead of providing the specific amount;
- Disclosure on dividend income is no longer required.
Having said the above, the Taxpayers are still required to disclose the details of the 5 largest products / services and important intra-group service arrangements as well as 5 most important financing arrangements, in which the fact-finding process would be long.
Points to note
Despite the relaxation of Form IR1475, taxpayers are still required to declare that they have completed the preparation of Master File and Local File by the prescribed deadline (i.e., 9 months after the Accounting Year-end Date).
As such, taxpayers are reminded to prepare their Master File and Local File on an annual basis instead of preparing it only upon submission request by the IRD.
On the other hand, the IRD strictly requires the taxpayers to submit the Form IR1475 within 1 month from the request by the IRD. As many of you will know, it would be particularly difficult to prepare multiple years of Master File and Local File within 1 month of time. If the IRD finds out that the Transfer Pricing Documentation are prepared after the preparation deadline (e.g., some of the disclosed facts seem to appear only after the preparation deadline), it may impose penalty to the Taxpayers.