Transfer pricing local file
Local files are an important part of the required transfer pricing documentation. As of January 2022, the OECD updated its transfer pricing guidelines for multinationals to align with the recommendations of the BEPS project. Since this update, the guidelines include a three-step approach to transfer pricing documentation. This three-step approach includes the documentation of a master file, local files and country-by-country report. These are all annual requirements.
The local files are just one part of the transfer pricing documentation requirements for multinationals. Transfer pricing local files are prepared at company or country level, whereas the master file is prepared at group level. The local file supports the master file and usually relates to a specific entity in a specific country. It provides a more detailed overview of the related party transactions that are entered into by this specific entity.
The local file usually includes:
- Detailed information and overview of the local entity
- Types of intercompany transactions involving the local entity
- Analyses about at arm’s length prices including a functional analysis, economic analysis and a financial analysis
What should you keep in mind?
When the local file is mandatory, it must be considered as a transfer pricing compliance requirement. A lack of proper transfer pricing documentation can cause a lot of difficulties, such as a shift in the burden of proof when local tax authorities do not agree with your intercompany pricing. It is important to look at national requirements in the countries where your MNE operates; each country has its own regulations and guidelines. Most countries have implemented the OECD model local file. However, some countries have stricter regulations.
Furthermore, the lack of (proper) local file transfer pricing documentation may have adverse consequences, such as issues or audits by the tax authorities. Other risks that may arise are fines and questions from stakeholders and shareholders. Finally, some countries have a submission requirement with respect to the local file. Therefore, not submitting your local file could lead to high tax penalties.
Our offer and service
Quantera Global can help your company set up solid documentation that meets all compliance regulations. If your company is faced with (additional) documentation requirements, our advisors can support you. If desired, we can also review your current documentation. Our services are tailored to your needs, see our menu-based approach.
How we can support you and your company
- Analysis of the current transfer pricing documentation, including local files
- Providing support with the preparation of local files
- Performing a risk analysis: identify possible transfer pricing risks
- Providing an overview of local requirements in the jurisdictions you are based
- Use of our global alliance network