Developments in transfer pricing documentation

(Updated 30 March 2021)

Recent developments in transfer pricing documentation requirements should prompt MNCs to reassess management of cross border tax compliance.

With a focus on protecting tax revenues in straightened economic times, many jurisdictions are focussing on transfer pricing compliance and raising awareness of documentation requirements and penalties for non-compliance.  This indicates the groundwork is being laid for increased focus on transfer pricing audits, likely to be fruitful areas of work for Revenue Authorities during times of significant changes to business models and supply chains.  Taxpayers will be well advised to keep abreast of transfer pricing documentation changes in each jurisdiction and ensure their own records are up to date.

In this article we highlight some important developments in Europe and USA.


In 2013 the OECD The BEPS project Action 13 report developed new standards regarding transfer pricing documentation with the aim of enhancing transparency for tax administration, but taking into consideration the compliance costs for business.  The standards for TP documentation include three elements:

  • a high level report covering global business operations and transfer pricing policies (a ‘master file’);
  • detailed transactional documentation of each country (a ‘local file’);and
  • country by country reporting (CBCR) for larger multinationals (those with consolidated annual turnover exceeding €750m).

Most jurisdictions have incorporated CBCR in their compliance regimes, and we are now seeing a number of jurisdictions adjust their transfer pricing documentation requirements in response to BEPS action 13.  As different jurisdictions have different requirements, it cannot be assumed that what is acceptable in one jurisdiction will be acceptable in another jurisdiction.

Recently the OECD has issued Guidance on the transfer pricing implications of the COVID-19 pandemic, which will impact the transfer pricing analysis and documentation for FY 2020 and possibly further.

Recent TP documentation developments in Europe and USA

Italy announced substantial changes to is transfer pricing documentation requirements on 23 November 2020, which affect requirements relating to fiscal years ended on or after that date.  It extends the requirements to prepare master and local files from Italian resident companies and holding entity permanent establishments, to include permanent activities with operational activities.  There are simplifications available for small & medium sized enterprises and simplified basis for low value added service activities.  The possession of documentation must be confirmed on submission of a tax return, and must be made available to the Revenue Authority within 20 days of a request.  Further detail on these changes can be found here.

Romania applies detailed documentation requirements concerning the local file, which also includes the information that should normally be provided in the Master file. The deadline for large taxpayers to prepare the local file is within 10 days from the filling of the corporate tax return, while other categories of taxpayers have between 30-60 days to present the report upon the request of the authorities. Since 2020 VAT registered taxpayers must report whether they carried out transactions with related parties during the reporting period. Further detail on the Romanian legislation can be found here.

Denmark has introduced rules requiring the submission of transfer pricing documentation including master and local files, within 60 days of the tax return filing deadline.  Failure to submit the documentation leaves open the possibility of penalties and discretionary reassessment of the revenue by the Revenue Authorities.

United States IRS released in April 2020 guidance in the form of frequently asked questions on the level of transfer pricing documentation expected if the taxpayer is to avoid a net adjustment transfer pricing penalty,  The penalty can apply where the adjustment exceeds the lower of $5m or 10% of gross receipts.  It is clear that the US is putting more effort into its transfer pricing audit activities.

UK: While applying the latest OECD transfer pricing guidelines to its transfer pricing legislation, the UK does currently not prescribe the type of transfer pricing documentation that must be kept.  However it does expect that it adequately demonstrates that their transfer pricing meets the arm’s length standard (see here).   Recently, however, a consultation (see also and here) has been released proposing requirements for:

  • Master File and Local File format: The introduction of a requirement for large multinational groups that fall into the country-by-country reporting (CbCR) regime to keep, and produce promptly upon request (the proposal is within 30 days), transfer pricing documentation in line with the OECD Master File and Local File format. Also being proposed is an “evidence” log which would be a specific UK requirement in addition to the OECD requirements. This could for example include emails, global P&L segmentation and global staff charts by grade etc to support the local UK functional and economic analysis.
  • International Dealings Schedule (to submit with the Tax Return): The introduction of a new annual filing obligation, whereby certain in scope businesses must include with their annual tax return, details about material cross border transactions with associated enterprises. The government is exploring the idea that all UK businesses in scope of UK transfer pricing legislation would be required to file an International Dealings Schedule providing details about cross border, intragroup transactions where the counterparty is in another territory.

We do not yet know whether this consultation will result in legislative changes, but many businesses may already be following this approach to make their global transfer pricing compliance easier to operate and as part of the process of managing relations with revenue authorities. A greater burden would however arise if the proposed “evidence logs” were also made mandatory. 

The UK also has found recent success in examining taxpayers’ transfer pricing documentation, finding in many cases that the documentation in use does not match the current business model.  In 2019 it introduced a diverted profits compliance facility (which first featured the above evidence log approach) aimed at speeding up the resolution of transfer pricing errors in a manner which permits the taxpayer to have control of the resolution process.


While having appropriate and correct transfer pricing documentation can go a long way to helping avoid transfer pricing penalties and disputes, there may be circumstances where you run into transfer pricing disputes.  There are a range of avenues that can be used to help deal with disputes.  Further detail of these routes can be found on here and here.