The Local, Master, and Country-by-Country Reports (CbC) are part of a standardized approach to transfer pricing documentation, as published by the OECD in connection with Action 13 of the Action Plan on Base Erosion and Profit Shifting (BEPS) (Base Erosion and Profit Shifting), which proposed a review of the documentation required of multinational enterprises (MNEs) to demonstrate compliance with transfer pricing obligations, with the aim of increasing transparency for tax authorities.
The Local File is a technical report, a quantitative supporting document that provides all the information and supporting evidence regarding the transactions carried out by the local taxpayer within the scope of transfer pricing, with the objective of determining whether the transactions are at arm’s length. This report contains a description of the company’s organizational structure, strategic activities, and business lines; contractual terms; as well as a detailed description of the transactions carried out within the scope of transfer pricing, the functional analysis, identifying the assets and risks assumed by each party, the selection of methods, and the identification of internal or external comparables. Additionally, it must include the local taxpayer’s financial information, the range of values, and conclusions. All of this information is submitted directly to the tax authorities of each country.
The Informative Affidavit (Master File) is a detailed transfer pricing documentation report that may apply to companies that are members of economic groups (a set of entities linked by ownership or control relationships) when certain specific requirements are met, in accordance with the local legislation of each country. It is a qualitative report that provides a high-level overview of the economic group’s structure and global business activities. It also explains the group’s global transfer pricing policies, provides information on the supply chain and the geographic markets in which the group operates, and describes the group’s policies regarding intangible assets; the financial statements of the companies within the economic group are attached.
The Country-by-Country Report Affidavit is intended for multinational companies and must be filed by the group’s parent entity whose consolidated group revenue for the preceding period is at least 750 million euros as of the closing date of the financial statements. This Country-by-Country Report includes information concerning the entire multinational group, indicating the level of revenue, pre-tax profits, and the amount of tax in each of the jurisdictions in which it operates, as well as the contributed capital and number of employees. This type of report provides an overview of the distribution of profits, taxes, and economic activities by tax jurisdiction for all companies comprising the Group.
