Transfer Pricing Local File Documentation
As part of Hong Kong's commitment to international tax transparency, Hong Kong has codified its Transfer Pricing regulatory regime in 2018. Three-tiered standardized approach, namely Master File, Local File and Country-by-Country Report, is introduced for MNEs to demonstrate their transfer pricing policies. The Transfer Pricing Local File requirement targets MNEs with a significant presence in Hong Kong. These enterprises often have complex organizational structures, cross-border transactions, and significant economic activities within the jurisdiction.
Meaning of Transfer Pricing Local File
In this regard, the Transfer Pricing Local File should record any specific transactional transfer pricing details for each jurisdiction. The Local File should include details of material controlled transactions conducted by the taxpayer with its associated enterprises involved, the monetary values involved as well as comprehensive transfer pricing analysis related to those transactions. The Transfer Pricing Local File is an important tool to supplement the Transfer Pricing Master File and aids in ensuring that the enterprise has adhered to the arm's length principle in its material transfer pricing positions. Various transfer pricing methods will be examined in the Transfer Pricing Local File.
Threshold for Transfer Pricing Local File
Criteria (A): Based on size of business | Threshold (HK$) | |
(i) | Total annual revenue | > HK$400 Million |
(ii) | Total assets | > HK$300 Million |
(iii) | Employees | > 100 |
Criteria (B): Based on related party transactions (any one out of the four below) | Threshold (HK$) | |
(i) | Transfer of properties (excludes financial assets / intangibles) | > HK$220 Million |
(ii) | Transactions in financial assets | > HK$110 Million |
(iii) | Transfers of intangibles | > HK$110 Million |
(iv) | Any other transactions (e.g. service income /royalty income) | > HK$44 Million |
5 Common Transfer Pricing Methods
1. Profit split method
2. Comparable uncontrolled price method
3. Transactional net margin method
4. Resale price method
5. Cost plus method
Preparation Deadline
The deadline of preparing Transfer Pricing local file in Hong Kong is 9 months after the accounting year-end.
Taxpayers in Hong Kong who is required to prepare Transfer Pricing Local File is also required to prepare Transfer Pricing Master File. See our services for Master File here.
Services Offered by Our Tax Experts
We can assist you on the following services:
Ø Annual Transfer Pricing Local File documentation and preparation
Ø Benchmarking report on specified transaction and advisory for tax investigation and management reporting purposes
