As I’m sure you already know, the OECD’s TP Guidelines already specify that master files and local files must include the following information:

Master files:

  • A list of important agreements among identified associated enterprises related to intangibles, including cost contribution arrangements, principal research service agreements and license agreements.

(OECD Transfer Pricing Guidelines 2017, Annex I to Chapter V, pp 501, 502)

Local files:

  • Copies of all material intercompany agreements concluded by the local entity.

(OECD Transfer Pricing Guidelines 2017, Annex II to Chapter V, pp 505, 506)

A recurring problem with many of the master files and local files we come across is that they don’t map the functional analysis against the contractual and legal structure of the group. As a result, they fail to delineate the actual transaction involved, and they misrepresent the allocation of risk.

This does not just create a transfer pricing problem. Intercompany agreements do not merely exist ‘for tax’ – they constitute the ‘corporate backbone’ of a multinational group for various purposes, including for customs duties, VAT, asset protection, regulatory compliance and managing the personal liability exposure of directors of individual group entities. Sloppy thinking leads to an incoherent mismatch of purported TP positions, invoice narratives, accounting records and legal structures.

A classic example would be intra-group distribution arrangements. From an economic perspective, a local sales entity may be providing ‘routine distribution services’ to the parent entity or regional entrepreneur. But the actual risk profile of the local sales entity depends to a large extent on the contractual structure, including which entity acts as principal in making sales to third parties (and is likely to be primarily liability in the event of product liability claims). Similarly, articulating the flow of title to goods and the flow of physical possession is fundamental to understanding where risks sit.

So I would like to propose the following mandatory content for transfer pricing master files and (where required) local files:

  • A brief description of the contractual or legal arrangements as regards the inflow and outflow of significant goods, services, intangible assets and finance affecting the relevant associated enterprises, specifying which legal entities are the contractual counterparties with third party customers or suppliers.

Do you agree? If so, how would you improve the above wording?

If you don’t agree, why not? Drop me an email to let me know at

If any of this discussion is a surprise to you, then you probably need to register for our course on intercompany agreements, which is recognised by the UK’s Chartered Institute of Tax. You can find details here.