Transfer Pricing Documentation

The transfer pricing regulatory regime mandates Hong Kong entities to prepare transfer pricing documentation, namely master file, local file and country-by-country report. This three-tiered standardized approach requires a Hong Kong entity to articulate and execute a consistent transfer pricing policy and provide the Assessor with useful information for assessing transfer pricing risks.

Master File and Local File

A master file should give a high-level overview of the group of enterprises, including the global business operations and transfer pricing policies. It is expected to assist in evaluating the presence of significant transfer pricing risk. The information in the master file is organized into 5 categories:

  • The group's organizational structure;
  • The group's business or businesses;
  • The group's intangibles;
  • The group's intercompany financial activities;
  • The group's financial and tax positions.

A local file should provide detailed transactional transfer pricing information specific to the 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.

It supplements the master file and helps meet the objective of assuring that the enterprise has complied with the arm’s length principle in its material transfer pricing positions.