For many companies, Transfer Pricing studies are still viewed as a purely formal obligation: a document prepared once a year to avoid a penalty. This perception underestimates the true value of the exercise. A well-prepared Transfer Pricing study is not just the documentary evidence required by the tax authority—it is a tool for risk management, internal decision-making, and proactive defense in the event of a tax audit. These are the concrete benefits it provides to a multinational group, beyond the regulatory requirement.
It reduces uncertainty in the face of an audit
The most direct benefit of a Local File is that it shifts the burden of proof to a time when the company has full control over the quality of its analysis, rather than having to reconstruct that justification under pressure from a request by the tax authority. A contemporary study, prepared using information and comparables current at the time of the transaction, is substantially more defensible than any explanation constructed after the tax authority has already questioned the result.
It provides early insight into the group’s actual level of risk
Preparing the study requires a technically rigorous review to determine whether the financial results of each group entity are consistent with the functions it performs, the assets it uses, and the risks it actually assumes. This exercise often reveals—before a tax audit does—whether any group entity falls outside the arm’s-length range—information that allows financial management to take corrective action proactively, rather than reactively.
It facilitates access to preventive mechanisms such as APAs
A track record of robust and consistent transfer pricing studies over time is, in practice, an implicit requirement for a group to seriously evaluate preventive mechanisms such as Advance Pricing Agreements (APAs), which several tax authorities in the region are actively promoting. Without a reliable historical analysis, it is much more difficult to justify to the tax authority the methodology proposed for future use.
It supports business decisions, not just tax returns
The functional analysis required by a Transfer Pricing study—identifying where key functions are actually performed, where risk decisions are made, and where value is effectively generated within the group—is information that is also valuable for business management itself. Decisions regarding restructuring, opening new entities, or changes to the distribution chain benefit from having this up-to-date functional map, beyond the tax compliance that originally prompted it.
Ensures consistency across all group documentation
A well-integrated transfer pricing Local File allows for verification that the reported information is consistent across the Local File, the Master File, and the Country by Country Report—the three levels of documentation required by the international standard. In practice, this consistency is one of the first elements any tax authority reviews when assessing the risk level of a multinational group, and its absence can raise questions even when each document, taken in isolation, is technically correct.
Strengthens the group’s position with partners, investors, and external auditors
Having robust and up-to-date Transfer Pricing documentation also adds value beyond the strictly tax-related sphere: external auditors, investors, and potential business partners view it favorably when a multinational group has its intercompany transactions properly substantiated as part of a mature and well-governed tax risk management framework.
At TPC Group, we help multinational groups develop Transfer Pricing studies that not only comply with current regulations but also add real value to business management by anticipating risks before they become contingencies.
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