Transfer Pricing Local File & Master File Requirements

Local file and master file: what each must containThe master file gives tax administrations a group-level picture: structure, intangibles, intercompany financing and consolidated financial position. The local file documents the local entity's controlled transactions in detail — amounts, counterparties, functional analysis, method selection and benchmarking. Under Dutch rules, groups above the consolidated revenue threshold must have both in the administration by the filing date of the corporate income tax return, per financial year.Transfer pricing documentation fails on data far more often than on economics. The functional analysis is usually fine; the transaction schedule does not reconcile to the ledger, the counterparty split does not match the intercompany reconciliation, and last year's numbers were rebuilt by hand.Treating the local file as a reporting deliverable sourced from the ledger — rather than an annual writing exercise — removes most of that risk and most of the cost.Master file: group-level content

Organisational structure: legal and ownership chart with geographic locations of operating entities

Business description: profit drivers, supply chain for the five largest products or services by turnover, service arrangements, key markets and any business restructurings

Intangibles: the group strategy, list of material intangibles and their legal owners, cost-contribution and licence agreements, and transfer pricing policies for R&D

Intercompany financial activities: how the group is financed, entities performing central financing functions, and the policy for financing arrangements between associated enterprises

Financial and tax positions: consolidated financial statements for the year and a list of existing unilateral APAs and rulings on income allocation

Local file: entity-level content

Local entity: management structure, reporting lines, business strategy and key competitors

Controlled transactions per category: description, amounts of intragroup payments and receipts by counterparty jurisdiction, and copies of the agreements

Functional analysis: functions performed, assets used and risks assumed, for the local entity and the counterparty

Method selection: chosen transfer pricing method, the tested party, the financial indicator and why alternatives were rejected

Benchmarking: comparables search, screening criteria, rejection matrix, financial data used and the resulting arm's-length range

Financial information: annual accounts, schedules reconciling the financial data used in the method to the annual accounts, and comparable data summaries

Dutch and EU specifics

Master and local file obligation applies to groups above the consolidated revenue threshold in Dutch law (Article 29g Wet Vpb 1969), documented per financial year

Both files must be in the administration by the CIT return filing date — not produced on request afterwards

Country-by-country reporting applies from consolidated revenue of EUR 750 million, with notification obligations in the Netherlands

Groups below the threshold still carry the general arm's-length substantiation obligation under Article 8b Wet Vpb 1969

Public CbCR under Directive (EU) 2021/2101 adds a disclosure dimension for large groups, using the same underlying data

Language: Dutch or English is accepted for the files in the Netherlands

The financial data both files depend onEverything above rests on one schedule: controlled transactions by category, counterparty and amount, reconciling to the ledger. If that schedule is produced from the intercompany reconciliation rather than assembled at year-end, documentation stops being a project.

Transaction categories mapped in every local chart of accounts — services, royalties, financing, goods, cost allocations

Counterparty entity codes on every intercompany posting, so the split by jurisdiction is a query, not a reconstruction

Segmented P&L for the tested party where the method requires it, produced consistently year on year

Cost bases for cost-plus arrangements, with the allocation keys documented and reperformable

Loan and interest schedules with rates, tenors and currency, matching the intercompany reconciliation

A rate table for translation consistent with the statutory accounts

Where documentation gets challenged

The transaction schedule does not reconcile to the annual accounts — the fastest way to lose credibility in an audit

Policy and practice diverge: the file describes a 5% mark-up, the ledger shows something else

Benchmark study reused for years without a refreshed financial update or a documented rationale

Cost allocation keys asserted but not reperformable from source data

Intercompany agreements missing, unsigned, or dated after the transactions they cover

Documentation readiness checklist

Threshold test documented for master file, local file and CbCR obligations

Master file content mapped to OECD Annex I, with gaps assigned

Local file per relevant entity, mapped to OECD Annex II

Controlled transaction schedule reconciling to the annual accounts

Counterparty entity codes present on all intercompany postings

Signed intercompany agreements on file, dated before the transactions

Functional analysis refreshed for business changes during the year

Method selection documented, including rejected alternatives

Benchmark study with search strategy, rejection matrix and financial update

Segmented financials for the tested party, prepared consistently

Cost allocation keys documented and reperformable

Files complete in the administration by the CIT filing date

How we would approach this

We source the controlled transaction schedule from the intercompany reconciliation so documentation and ledger agree by construction.

We check policy against actual booked outcomes before drafting, because that is what an audit tests first.

We set the files up as an annually refreshed data product, so year two costs a fraction of year one.

What is the difference between a local file and a master file?The master file describes the group: structure, value drivers, intangibles, intercompany financing and the global transfer pricing policy. The local file covers the local entity's controlled transactions, the functional analysis and the benchmarking supporting the arm's length outcome.What are the Dutch thresholds?Master file and local file obligations apply to groups with consolidated revenue of at least EUR 50 million; country-by-country reporting applies from EUR 750 million.Primary sources

OECD Transfer Pricing Guidelines — https://www.oecd.org/tax/transfer-pricing/oecd-transfer-pricing-guidelines-for-multinational-enterprises-and-tax-administrations-20769717.htm

Wet op de vennootschapsbelasting 1969, art. 8b and 29b–29h — https://wetten.overheid.nl/BWBR0002672/

Directive (EU) 2021/2101 — public country-by-country reporting — https://eur-lex.europa.eu/eli/dir/2021/2101/oj