What is a master file in transfer pricing?
It is the document describing the group rather than any one transaction: the legal and ownership structure, what drives the business, where the intangibles sit and who develops them, how the group is financed internally, and its financial position. It carries no pricing calculation for a particular entity. Its job is to give an administration the context in which a local entity's numbers are meant to make sense. Because it is filed locally in several countries at once, each of those administrations ends up reading the same account of where the group says its value is created.
Do we need a master file if we already have a local file?
They answer different questions and neither stands in for the other. The local file deals with one entity: its controlled transactions, the functional analysis, the method chosen, the comparables and the results. The master file deals with the group: structure, business drivers, intangibles, internal financing. An administration testing a local entity's margin reads the group description first, to see whether the entity's characterisation is plausible, and then tests the numbers. Filing one without the other leaves either a group narrative with no numbers attached or numbers with no context around them.
Who should prepare the master file, the parent or each subsidiary?
In practice the group prepares one document centrally and each local entity files it where it is required. That is the only arrangement that produces consistency, and consistency is the whole value of the thing. Where local entities draft their own versions, each describes the group as it understands it from where it sits, and the descriptions drift apart. The local contribution is a different one: checking that the group's description of the local entity's role matches what that entity actually does, and raising it with the group before submission rather than after a query.
Can we file the same master file in every country?
The content is meant to be one description, and keeping it one description is the point. What varies is the form it goes on and what each administration asks for alongside it; India, for instance, collects it on Form 3CEAA. So the sensible approach is a single group document maintained centrally, with local filings drawing from it rather than rewriting it. If a country needs something the group document does not cover, add it to the group document where it belongs instead of creating a local variant, because the variants are what later contradict each other.
What should the intangibles section of a master file cover?
Which intangibles the group owns and uses, which entities hold legal title, and separately which entities actually perform and control their development, enhancement, maintenance, protection and exploitation. It should also cover the intercompany agreements attaching to them and any transfers between related parties during the period. This section is read against conduct rather than contracts, so a description naming a legal owner and saying nothing about who does the work invites the enquiry the file exists to head off. Keep it consistent with what the local files say about the same entities.
Does the master file need updating if the group has not changed?
Review it every year even when the answer is that little has changed, and record that you did. The parts that move quietly are the ones that matter: a new intercompany loan or support undertaking, a change in who holds or develops an intangible, a restructured supply chain, an entity added or wound up. The financial information also needs refreshing. A file describing a structure the group has grown out of is worse than an incomplete one, because the local files will reflect today's arrangements and the contradiction between them is what gets noticed.
What are the transfer pricing methods?
Five, in two groups. Three compare transactions: comparable uncontrolled price, resale price, and cost plus. Two compare profits: the transactional net margin method, and profit split. The OECD asks for the most appropriate method on the facts rather than a fixed hierarchy; the United States applies a best-method rule to similar effect. Selection is itself a documented judgment, and a method chosen without recording why is a weak position under audit. See our transfer pricing work.
How much foreign income is tax-free in Canada?
None of it is tax-free for being foreign. A Canadian resident is taxed on worldwide income, so foreign salary, interest, dividends, rent and gains all go on the return, converted to Canadian dollars. What genuinely reduces the bill is the basic personal amount, the credit for foreign tax already paid, and any treaty article that exempts a specific type of income. The reporting thresholds people have in mind — the foreign property statement, for one — govern reporting, not exemption. See the foreign tax credit.
