Local Report – Importance, Objective, and Risks from the perspective of the tax administration

October 26, 2023

The efficient management of the tax resources is relevant for the effective performance of any country. In this context, the Local Report arises as a decisive tool from the perspective of the Tax Administration, playing an elemental role in the gathering of economic information that directly affects the decision-making and tax audits for taxpayers performing related-party transactions, mainly in large economic groups. In this regard, the Transfer Pricing regulations are established as ruling standards to ensure appropriate tax control and avoid the erosion of tax bases of taxpayers performing transactions with related parties and/or companies residing in preferential tax regime territories.


The Local Report arises as an indispensable tool for the Tax Administration by providing a detailed and updated view of business transactions in specific jurisdictions. The information gathered in this report enables tax authorities to assess the tax compliance of companies and individuals, identify possible irregularities, and design strategies to enhance tax collection. Likewise, it significantly contributes to the tax transparency and the fairness in the distribution of the tax burden.

In this regard, the Local Report must be consistent and fair in the Transfer Pricing practices internationally through regulatory compliance, risk management, and the optimization of the tax burden in transactions with related companies and/or those residing in preferential tax regime territories.

The access of Tax Authorities to this information enables the compliance of taxpayers with their tax obligations fairly in the Transfer Pricing context, avoiding possible loopholes and ensuring the sustainability of public resources.


These are closely aligned with the general goals of the Tax Administration.

Firstly, the overview of the local business activity must be really detailed, including data on revenues, expenses, investments, and other relevant transactions. This information is essential to assess the tax capacity of residents and companies in a specific jurisdiction.

Second, it aims to ease the identification and correction of possible tax evasions, i.e., it acts as an early detection tool for tax authorities to investigate and address irregularities before they become harder problems.


Its implementation is not exempt from challenges and risks. One of the main risks lies in the confidentiality of the gathered information. The Tax Administration must ensure that sensitive data is securely handled and protected against possible leaks that could compromise the privacy of taxpayers.

Likewise, Tax Administrations establish penalties and fines, which vary according to the jurisdiction and tax laws applicable in each country, to void non-compliance with these obligations. Non-compliance, late filing, or misstatement of information are subject to both penalties and tax adjustments to transactions whose agreed prices are not at common market conditions.