Hong Kong Master File, Local File, and Country-by-Country Reporting Requirements

Hong Kong Master File Local File and CbCR Requirements

Multinational enterprise (MNE) groups with consolidated group revenue of at least EUR 750 million must prepare and file three tiers of transfer pricing documentation with the Inland Revenue Department (IRD): a master file and local file on request, plus a country-by-country report (CbCR) annually. The hong kong master file local file requirements align with the OECD's Base Erosion and Profit Shifting (BEPS) Action 13 recommendations. From the year of assessment 2025-26, in-scope MNE groups must file these returns electronically through the IRD's Business Tax Portal or Tax Representative Portal, using iXBRL tagging for financial statements and computations. The documentation supports the IRD's assessment under the territorial source principle and Departmental Interpretation and Practice Note 21, and it interacts directly with the foreign-sourced income exemption (FSIE) regime and minimum top-up tax under Pillar Two.

Hong Kong Transfer Pricing Documentation Requirements

The IRD requires MNE groups to maintain three-tier transfer pricing documentation: master file, local file, and country-by-country report. The master file provides an overview of the group's business, its transfer pricing policies, and its global allocation of income and economic activity. The local file focuses on material transactions between the Hong Kong entity and its connected entities, analysing their arm's length nature. The CbCR aggregates group revenue, profit before tax, income tax paid and accrued, stated capital, accumulated earnings, number of employees, and tangible assets by jurisdiction. These requirements apply to Hong Kong entities that are members of an MNE group with consolidated group revenue of EUR 750 million or more in the preceding accounting period, measured on a basis period consistent with the assessable profits computation. The IRD published IRD practice note on transfer pricing documentation, which incorporates OECD guidance. Practitioners refer to the Inland Revenue Ordinance (Cap. 112) and the Inland Revenue Department's own interpretation and practice notes for compliance standards. A Hong Kong entity that does not meet the threshold must still maintain adequate documentation if it performs intra-group transactions, but it is not required to file CbCR or prepare master file and local file on the prescribed templates.

CbCR Hong Kong Filing Obligations

The CbCR must be filed within 12 months after the end of the MNE group's accounting period. If the group's accounting period ends on 31 December 2025, the CbCR is due by 31 December 2026. The filing obligation rests with the ultimate parent entity of the group, but a surrogate parent entity or constituent entity may file if the jurisdiction of the ultimate parent does not have an exchange arrangement with Hong Kong. Hong Kong has concluded competent authority agreements for automatic exchange of CbCR with many jurisdictions under the OECD framework. The IRD uses the CbCR to assess high-level transfer pricing risks and to inform transfer pricing audits. Entities that fail to file on time may face penalties under section 80 of the Inland Revenue Ordinance, including additional tax assessments. The IRD expects the CbCR to be filed through the Business Tax Portal or Tax Representative Portal, with iXBRL tagging of the relevant data where required. The IRD's published filing instructions specify the use of iXBRL from the year of assessment 2025-26 for in-scope MNE groups. A Hong Kong entity that is not the ultimate parent must notify the IRD of the identity and jurisdiction of the reporting entity.

Hong Kong Country-by-Country Reporting Threshold

The threshold for CbCR filing is consolidated group revenue of EUR 750 million or more in the immediately preceding accounting period of the MNE group. This is the same threshold used for the OECD's minimum standard on CbCR under BEPS Action 13. The IRD applies this threshold strictly; a group with revenue of exactly EUR 749 million is not required to file. However, the IRD may request a voluntary filing if the group operates in high-risk jurisdictions or has material intra-group transactions. The threshold is measured on the group's consolidated financial statements prepared in accordance with international financial reporting standards or an equivalent accounting framework. The Hong Kong entity must confirm whether the group meets the threshold in its profits tax return (Form BIR51) by completing the relevant supplementary form. Where the group meets the threshold, the entity must also prepare the master file and local file documentation, even if the IRD does not request it immediately. The documentation must be available within 30 days of request. The IRD practice note on transfer pricing documentation specifies the content and format of the master file and local file, which follow the OECD guidelines.

Master File and Local File Deadlines and Preparation

The master file and local file are not filed automatically. They must be maintained and produced to the IRD upon request, typically within 30 days of the request. Prepare the documentation in the same accounting period as the associated profits tax return, or as soon as the assessable profits for the period are finalised. The IRD may request these documents during a transfer pricing audit or field audit. To avoid penalties, prepare the documentation contemporaneously, meaning before the tax return is filed or shortly thereafter. The IRD's block extension scheme for profits tax returns does not extend the deadline for producing master file or local file documentation if the IRD requests it. The documentation must include a functional and risk analysis of the Hong Kong entity, a description of the group's transfer pricing policies, and a comparability analysis for each material transaction. The HK$2,000,000 two-tiered profit tax rate has no relevance to transfer pricing documentation; the rate applies only to the computation of assessable profits.

Electronic Filing of CbCR and Master File

From the year of assessment 2025-26, mandatory electronic filing applies to relevant entities of in-scope MNE groups. The IRD requires these entities to file profits tax returns and CbCR through the Business Tax Portal or Tax Representative Portal, using iXBRL tagging for financial statements and tax computations. The IRD provides preparation tools for iXBRL tagging, including a schema and a viewer. The electronic filing requirement applies to the CbCR, but not to the master file or local file, which are produced on request. The IRD has stated its intention to reach full electronic filing by 2030. For CbCR filing, the taxpayer must register for the Tax Representative Portal and have a valid digital certificate. The portal is the same system used for profits tax returns (Form BIR51) and supplementary forms. The IRD publishes a block extension letter for profits tax returns that sets later filing dates by accounting date, but this scheme does not affect CbCR deadlines.

Interaction with the FSIE Regime and Territorial Source

The master file and local file documentation must address the economic substance requirement under the FSIE regime. The FSIE regime took effect on 1 January 2023 and was expanded on 1 January 2024 to cover disposal gains. For an MNE group that claims exemption from Hong Kong profits tax on foreign-sourced income under the FSIE rules, the documentation must demonstrate that sufficient economic substance exists in Hong Kong to satisfy the exception. This includes demonstrating that the entity has adequate premises, employees, and expenditure in Hong Kong to carry out the core income-generating activities. The documentation should also address the territorial source principle under DIPN 21, showing that the profits are not sourced in or derived from Hong Kong. An offshore claim for profits sourced outside Hong Kong requires specific documentation to support the claim, including details of the location of contracts, payments, and business operations. The master file and local file do not replace the evidence needed for an offshore claim, but they support the IRD's assessment of transfer pricing risk and FSIE compliance.

Practical Steps for Compliance

Prepare the master file and local file documentation before the profits tax return is filed, using the OECD form templates as a starting point. Identify the connected entities with which the Hong Kong entity transacts and classify the transactions by category, such as sales of goods, provision of services, royalties, or interest. Conduct a functional and risk analysis to determine which entity controls the key risks and assets. Maintain contemporaneous transfer pricing reports that include a comparability analysis using public databases. Monitor the group's consolidated revenue each accounting period to determine if the EUR 750 million threshold is met. Register for the Tax Representative Portal and obtain the necessary digital certificate for electronic filing. Prepare the CbCR template using the IRD's prescribed format and iXBRL tagging. Do not wait for a request from the IRD to prepare the documentation; the IRD can impose penalties for non-compliance, including additional tax assessments under section 82A of the Inland Revenue Ordinance.