What is the difference between a master file and a local file?
The master file describes the group. The local file describes one entity's transactions. The master file covers structure, business drivers, intangibles, intercompany financing and financial positions, so it is the document that says where the group considers its value to be created. The local file then has to show that the entity's own numbers are consistent with that description. Reading them as two chapters of one document is the right instinct, because they are read that way by the authorities that receive them, and the risk sits in the join rather than in either document alone.
Who in the group should prepare the master file?
It is a group document, and the workable approach is to prepare it once, centrally, then have it reviewed by the people who will have to stand behind it locally. The reason is that the same description is filed in multiple countries, so every authority reads one account of where the group says value is created. Different local teams writing their own version of the group story is how contradictions enter. Central drafting with local review also surfaces the places where the description no longer matches what a particular entity actually does, which is precisely what wants finding before filing rather than afterwards.
Does our master file have to match what we filed elsewhere?
Yes, and that is the point of it. Because it is filed in multiple countries, every authority reads the same description of the group. A version that emphasises development work in one jurisdiction and a version that emphasises it elsewhere are not two presentations of a single business, they are a contradiction with your name on both copies. Keep one controlled text, record which entities filed which version and when, and treat any local edit as a change to the group document rather than a local convenience.
We only have a few intercompany transactions — do we still need one?
The master file is not sized to the transaction, it describes the group, so small volumes do not by themselves put you outside the documentation. Whether the obligation bites is a question about your group and the jurisdictions it sits in, and it is answered from the rules that apply to those places rather than from the size of a single charge. What is worth separating out is the usefulness question. Even where the file is not required, a short controlled description of the group is what keeps the local files from contradicting one another.
What happens if our local file contradicts the master file?
It invites exactly the enquiry the documentation was meant to prevent. An auditor who reads both and finds the group claiming that development sits in one place while the local file treats the local entity as the developer now has a reason to look further, and the first thing examined will be the inconsistency rather than the underlying pricing. The fix is procedural. Before either document is filed, read them against each other in the same sitting and reconcile the functional descriptions, so that the account of who does what is one account.
How often does the master file need to be updated?
Whenever the group it describes changes, which in practice means on a restructure, an acquisition, a change in how intangibles are held or a change in intercompany financing, as well as on the ordinary annual refresh of the financial positions. The failure mode is a file that is technically current but describes a group that no longer exists, because the narrative sections were carried forward while only the numbers were updated. Read the structure, intangibles and financing sections against this year's facts each cycle, not just the financial data.
What does a transfer pricing benchmarking study do?
It evidences that your related-party pricing sits within the range independent parties achieve. The work is comparison: identify companies or transactions genuinely similar in function, risk and assets, compute their margins, and show where your result falls against that range. Done before the filing deadline it supports the position; produced afterwards under audit it carries far less weight. See benchmarking study.
What is the CUP method?
Comparable uncontrolled price. You find the price charged in a comparable transaction between unrelated parties and test your intercompany price against it. It is the most direct of the methods and the most persuasive when it fits, because it compares like with like at the transaction level. Its limit is data: close comparables exist for commodities and standard products, rarely for bespoke services or unique intangibles, which is where the margin-based methods take over. See our transfer pricing work.
