TRansfer pricing glossary
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Master File

Master File

20/11/2024
A Master File is a key component of transfer pricing documentation that provides a high-level overview of an MNE’s global business operations, transfer pricing policies, and financial arrangements.

1. What is a Master File in Transfer Pricing?

A Master File is a key component of transfer pricing documentation that provides a high-level overview of an MNE’s global business operations, transfer pricing policies, and financial arrangements. It is designed to give tax authorities insight into how a multinational group allocates income and economic activities across different jurisdictions.

Unlike the Local File, which focuses on country-specific transactions, the Master File serves as a global summary of the company’s transfer pricing approach.

2. Why is the Master File Important?

The Master File plays a critical role in global tax compliance by:

  • Enhancing Transparency – It provides tax authorities with a clear understanding of an MNE’s structure, operations, and transfer pricing policies.
  • Supporting Risk Assessment – Authorities can use it to assess whether an MNE’s transfer pricing practices align with the arm’s length principle.
  • Facilitating Tax Audits – If a company is audited, a well-prepared Master File can help justify its transfer pricing policies and reduce potential penalties.
  • Ensuring Compliance with BEPS Action 13 – The OECD’s Base Erosion and Profit Shifting (BEPS) initiative introduced standardized documentation requirements, making the Master File a mandatory element in many jurisdictions.

Without a comprehensive and accurate Master File, MNEs risk facing tax disputes, financial penalties, and increased scrutiny from tax authorities worldwide.

3. What Information Does the Master File Contain?

The OECD Guidelines set out a standardized framework for the Master File, which includes five key sections:

A. Organizational Structure

  • A chart or description of the company’s legal and ownership structure.
  • An overview of all entities within the multinational group.

B. Business Operations

  • A description of the MNE’s main business activities, including key markets.
  • A list of the major profit-generating factors within the group.
  • An analysis of industry trends that impact the company’s pricing decisions.

C. Intangibles (Intellectual Property)

  • Details of patents, trademarks, brands, copyrights, and trade secrets.
  • A description of who owns and manages intellectual property within the group.
  • A list of intercompany agreements related to intangible assets.

D. Intercompany Financial Arrangements

  • An overview of financing arrangements within the group.
  • Details on intragroup loans, guarantees, and other financial transactions.
  • A description of transfer pricing policies related to financing.

E. Transfer Pricing Policies

  • A general explanation of the MNE’s transfer pricing policies.
  • A list of important related-party transactions and their pricing methods.
  • A discussion of global supply chains and value creation.

This structure ensures that tax authorities have a clear understanding of how an MNE operates and prices transactions across jurisdictions.

4. How is the Master File Different from the Local File?

The Master File and Local File are both part of the OECD’s three-tiered documentation approach. However, they serve different purposes:

While the Master File provides a big-picture view, the Local File dives into specific intercompany transactions within a country.

5. Who Needs to Prepare a Master File?

Any multinational enterprise (MNE) that meets certain revenue thresholds is required to prepare a Master File.

Common criteria for Master File requirements include:

  • Annual consolidated group revenue exceeding EUR 750 million (as per OECD guidelines).
  • Engagement in cross-border related-party transactions.
  • Operating in jurisdictions that have adopted BEPS Action 13.

Some countries have lower thresholds than the OECD standard, so companies should check local regulations to determine their obligations.

6. When is the Master File Due?

The deadline for preparing and submitting the Master File varies by country. However, it generally follows these timelines:

  • Annually, in line with the corporate tax filing deadline.
  • Upon request by tax authorities, with response times ranging from 30 to 60 days.

Many tax authorities require that the Master File be ready at the time of filing the tax return, even if it is only submitted later upon request.

7. How Do You Prepare a Master File?

Creating a compliant Master File involves several steps:

  1. Gather Business Data – Collect information about the company’s global operations, financial performance, and ownership structure.
  2. Document Transfer Pricing Policies – Describe the MNE’s approach to pricing intercompany transactions.
  3. Analyze Intangible Assets – Identify patents, trademarks, and intellectual property rights that affect pricing decisions.
  4. Assess Financial Arrangements – Document intragroup financing transactions and policies.
  5. Ensure Consistency with Local Files – Make sure the Master File aligns with the Local Files prepared for different jurisdictions.
  6. Review and Update Regularly – Transfer pricing policies and business structures evolve, so the Master File should be reviewed annually.

Many companies use transfer pricing consultants or software to streamline the process and ensure compliance.

8. What Happens if You Don’t Comply with Master File Requirements?

Failure to comply with Master File regulations can lead to:

  • Tax Penalties – Fines for missing or incomplete documentation.
  • Transfer Pricing Adjustments – Authorities may increase taxable income, leading to higher tax liabilities.
  • Audit Risks – Non-compliance can trigger audits and detailed investigations.
  • Reputational Damage – Increased scrutiny can harm the company’s standing with tax authorities.

To avoid these issues, MNEs must prepare and maintain accurate documentation that meets both OECD and local tax requirements.

In Summary

The Master File in transfer pricing is a critical document for multinational companies navigating global tax regulations. It provides tax authorities with a transparent, high-level view of an MNE’s transfer pricing policies, ensuring compliance and reducing audit risks.

If your business operates across multiple countries, keeping an up-to-date Master File is essential for staying compliant and avoiding tax disputes.