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Hong Kong Creates Website To Explain TP Documentation

by Mary Swire, Lowtax.net, Hong Kong
30 August, 2019

Hong Kong's Inland Revenue Department has created a webpage to explain the requirements for master and local file reporting under the country-by-country reporting regime.

CbC reporting was recommended by the OECD as part of Action 13 of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Action Plan. Certain multinationals must file a CbC report annually to provide a breakdown of the amount of revenue, profits, taxes, and other indicators of economic activities for each tax jurisdiction in which the multinational group does business. They should also file a master file and a local file.

The IRD's website explained: "In essence, transfer pricing documentation requires a summary of the global supply chain and the identification of the value drivers. It is important to document how value is generated by the group as a whole, the interdependencies of the functions performed by the associated enterprises with the rest of the group, and the contributions that the associated enterprises make to that value creation."

The IRD said that a master file "should give a high-level overview of the group of enterprises, including the global operations and transfer pricing policies." The information to be provided is organized into five categories, covering the group's organizational structure, business or businesses, intangibles, intercompany financial activities, and financial and tax positions. The IRD added that the master file "is expected to assist in evaluating the presence of significant transfer pricing risk."

The local file supplements the master file and is intended to demonstrate that the multinational has complied with the arm's length position in its transfer pricing dealings. The IRD stated that a local file "should provide detailed transactional transfer pricing information specific to enterprise in each jurisdiction, including details of material controlled transactions undertaken by the enterprise and associated enterprises involved, amounts involved in those transactions and transfer pricing analysis with respect to those transactions."

A Hong Kong entity must prepare a master file and a local file no later than nine months after the end of its accounting period. The website also clarifies the exemptions to the requirement to prepare a master and a local file, and provides information on how to comply with the regulations.

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