Transfer Pricing Master 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 requirement to prepare a Transfer Pricing Master File in Hong Kong primarily targets multinational enterprise groups (MNE groups) with significant presence in the jurisdiction. These groups often have complex organizational structures and cross-border transactions.
Meaning of Transfer Pricing Master File
In this regard, the Transfer Pricing Master File documentation is a high level overview of the entities within the MNE groups, including the global business structure and transfer pricing policies. The Transfer Pricing Master File should be able to evaluate whether significant transfer pricing risk exists within the MNE group. Specifically, the Transfer Pricing Master File should provide details of the group, including but not limited to the group’s organizational structure, the nature of business, intangibles, financial activities with the group as well as financial and tax positions of significant entities within the group.
Threshold for Transfer Pricing Master File
Criteria (A): Based on size of business | Threshold (HK$) | |
(i) | Total annual revenue | > HK$400 Million |
(ii) | Total assets | > HK$300 Million |
(iii) | Employees | > 100 |
Criteria (B): Based on related party transactions | Threshold (HK$) | |
(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
• Profit split method
• Comparable uncontrolled price method
• Transactional net margin method
• Resale price method
• Cost plus method
Preparation deadline
The deadline of preparing Transfer Pricing master file in Hong Kong is 9 months after the accounting year-end.
Taxpayers in Hong Kong who is required to prepare Transfer Pricing Master File is also required to prepare Transfer Pricing Local File. See our services for Local File here.
How our services can help
Our Tax Advisors can assist MNE groups in Hong Kong with the preparation and submission of Transfer Pricing master file documentation. We offer a comprehensive service that includes advising on the scope and preparing the content of the Transfer Pricing Master File, and ensuring compliance with the latest regulations. Our services aim to minimize tax risks and ensure a smooth process for our clients.
