Transfer Pricing Documentation: Master File, Local File and CbCR Explained

Knowing that transfer pricing rules exist is one thing; knowing exactly what documentation a tax authority expects to see is another. Most multinational groups now work to the OECD's three-tiered documentation framework, and understanding what belongs in each tier is the difference between an audit that goes smoothly and one that doesn't.

The three tiers, and what each one covers

The OECD's framework, set out under BEPS Action 13, splits transfer pricing documentation into three distinct pieces, each serving a different audience and purpose.

The Master File gives a high-level overview of the entire multinational group — its organisational structure, the businesses it operates, where its intangibles and R&D sit, how group entities finance each other, and its overall transfer pricing policies. It's prepared once, centrally, and used across every jurisdiction the group operates in.

The Local File is jurisdiction-specific and far more granular. For each material intercompany transaction involving a local entity, it sets out that entity's business strategy, a functional analysis of what the entity actually does and what risks it carries, a comparability analysis supporting the transfer pricing method used, and financial data reconciled back to the entity's own statutory accounts. This is the document a local tax authority will scrutinise most closely, because it's where the group's pricing policy meets the specific numbers for that country.

The Country-by-Country Report (CbCR) is different again — it's an aggregated, jurisdiction-by-jurisdiction breakdown of the whole group's revenue (split between related and unrelated parties), profit before tax, tax paid and accrued, employee headcount, and tangible assets, alongside a list of what each group entity actually does. It's typically filed once by the ultimate parent entity and then exchanged automatically between the tax authorities of the countries involved, rather than filed locally in each one. It only applies to large multinational groups above a set global revenue threshold, so most mid-sized groups won't need to file one even if they still need a Master File and Local Files.

Why the distinction matters in practice

A common mistake is treating "transfer pricing documentation" as one document rather than three, prepared for different readers. A Master File that's accurate at group level doesn't protect an entity if its Local File doesn't reconcile to its actual statutory accounts, and a CbCR filing doesn't remove the need for entity-level Local Files — the three tiers are complementary, not substitutes for each other. Finance teams preparing for a transfer pricing audit generally get the fewest surprises when the Local File's numbers are checked against the entity's own accounts before submission, rather than assumed to follow automatically from the group-level Master File.

Who's responsible for what

In most multinational groups, group tax or transfer pricing teams own the Master File and CbCR, since both require a consolidated, group-wide view. Local finance teams typically own — or at least heavily contribute to — the Local File for their entity, because they hold the day-to-day transaction detail and the entity's own statutory financials that the Local File needs to reconcile against. That split means local finance professionals are often closer to transfer pricing documentation than they realise, even without "transfer pricing" being part of their job title.

Timing and the cost of getting it wrong

Documentation requirements are set at the national level, so exact filing deadlines, formats and penalty regimes vary by country even though most follow the same OECD three-tier structure. What's consistent across jurisdictions is the underlying risk: documentation prepared after a tax authority has already opened an enquiry is treated very differently from documentation prepared contemporaneously, alongside the transactions it describes. Many jurisdictions link the availability of penalty protection, or a shift in the burden of proof during a dispute, to whether documentation existed and was adequate at the time the transactions took place — not whether it was pulled together retrospectively once an audit started. That's the practical reason transfer pricing documentation tends to be treated as an ongoing compliance process rather than an annual paperwork exercise done once and filed away.

Frequently asked questions

Does every company need to prepare a Country-by-Country Report?

No. CbCR only applies to large multinational enterprise groups above a set global revenue threshold set by the OECD framework and adopted into local law. Smaller multinational groups may still need Master and Local Files without needing to file a CbCR.

What's the difference between the Master File and the Local File?

The Master File is a single, group-wide document covering the whole multinational enterprise's structure and policies. The Local File is prepared separately for each relevant entity and focuses on that entity's specific material transactions, functions, and financial data.

Who reviews transfer pricing documentation?

Local tax authorities primarily review the Local File for the entities operating in their jurisdiction, since it contains the entity-specific detail. Master Files and CbCR data are typically shared with tax authorities as context, and CbCR data is exchanged automatically between countries' tax authorities.

Transfer pricing documentation is one of those areas where the underlying concept is simple but the practical detail is where audits are won or lost. If you want a fuller introduction to the topic first, see our guide to transfer pricing for finance and tax professionals. Learnsignal's CPD courses cover specialist tax and reporting topics like this one.