Master File and Local File - the new challenge for multinational corporations

The exchange of country-specific reports is currently on everyone's radar in Switzerland. Switzerland has undertaken to implement it as a minimum standard within the framework of the OECD BEPS-project by February 2017. But there are other standards in BEPS Action Point 13 that should not be underestimated by Swiss corporations - the Master and the Local File. 

The Master and Local File do not represent minimum standards and therefore it is up to the countries to decide whether they want to implement them or not. Switzerland has so far refused to demand these documentations from corporations in Switzerland, but it is still necessary for multinational corporations to remain vigilant. Corporations with headquarters in Switzerland may be obliged to submit a Master or Local file abroad due to the economic activity of their affiliated companies or permanent establishments. 

But what exactly are Master and a Local Files? 

Master File

The Master File is intended to provide the tax authorities with a general overview of the corporate group's business activities and to enable them to identify the existence of essential transfer pricing risks more easily. It should include the following:

  • Organisation structure
  • Description of business activities
  • Information on intangible assets
  • Overview of intra-corporate financial activities
  • Financial situation
  • Tax positions (incl. listing and short description of existing tax rulings) 

Local File

The Local File should be an addition to the Master File. Therefore, some cross-references to the master file are allowed. The Local File should include the following: 

  • More detailed information on the essential intra-corporate, cross-border business relationships (including information on the type and amount of transactions with affiliated companies, a comparability analysis, selection and application of the most suitable transfer pricing method)
  • Identification of transfer pricing issues
  • Tax rulings that refer to the business transactions described in the Local File 

Risk minimisation

If a country requests a Local and a Master file, the corporations must provide these directly to the local tax authorities. It has not yet been conclusively clarified in which countries the Master and Local File are legally required. Countries that have announced an implementation are e. g. Germany, Spain, Holland, Belgium, Sweden, South Korea and China. As countries implement the Master and Local File in their national legislation, the requirements for Master and Local Files, as well as the thresholds and submission deadlines may vary from country to country.

However, it is clear that corporations which do not submit the master and local file or submit them too late will have to expect high fines. In order to mitigate this risk and avoid unnecessary costs, corporations need to address this documentation requirement at an early stage. For corporations in Switzerland with tax links abroad, it is advisable to develop and implement a comprehensive Master File and Local File concept. The documentation should be viewed as an overall work covering all group activities and should be compiled from an internal and external risk perspective for all countries, regardless of whether all countries legally require the submission of a Master File or Local File. This enables the corporation to react quickly when other countries announce the implementation of Master and Local Files. The depth of the documentation can vary from country to country. If necessary, a rudimentary Local File can be quickly adjusted to a higher level if so required, which would considerably reduce the risk of fines and penalties. In addition, this approach gives the corporation good control over the entire billing system, enables it to identify any inconsistencies and errors, and allows it to benefit from it in the planning process. 

Final remark

The BEPS Action Point 13 is the beginning of a new era of cross-border tax planning and assessment. In future, the tax authorities will have an unprecedented level of information on corporations. It cannot be ruled out that this significant change in the system will influence the thinking and actions of the tax authorities in the individual countries. More than ever before, the authorities will assume that they can and want to have all relevant information at their disposal. Therefore, it could be that within a short period of time the countries will already assume that a Master and a Local File must be kept by multinational corporations. 

For further information, please refer to the article «Transfer Pricing Documentation and Country-Based Reports (CBC Reporting)» by Andreas Fross and Daniel Ledergerber in «Expert Focus», issue 10/2017,

pp. 726-735.