The audit of transactions between related parties has evolved significantly in recent years. As part of the measures promoted by the Organization for Economic Cooperation and Development (OECD) through Action 13 of the BEPS (Base Erosion and Profit Shifting) Project, numerous countries in Latin America have incorporated new documentation requirements regarding Transfer Pricing.
Within this framework, the Master File has become one of the main tools for tax transparency for multinational groups, allowing tax authorities to understand the global structure of the business and the generation of value within the economic group.
What is the Master File?
The Master File is a comprehensive document that provides a holistic view of the multinational group’s operations.
Its purpose is to provide relevant information on:
- The group’s organizational structure.
- The main lines of business.
- The markets in which it operates.
- Relevant intangible assets.
- Intragroup financial activities.
- The global Transfer Pricing policy.
- The allocation of functions, assets, and risks within the group.
Unlike the Local File, which focuses on the specific operations of an entity in a given jurisdiction, the Master File allows for an analysis of the group’s global strategy and how value is created internationally.
Latin America Strengthens Its Documentation Requirements
Several Latin American countries have incorporated the Master File into their Transfer Pricing regimes.
Jurisdictions such as:
- Mexico
- Brazil
- Colombia
- Peru
- Chile
- Argentina
Have developed specific requirements aligned with OECD recommendations, increasing the level of information that multinationals must provide to tax authorities.
This trend reflects a shift in tax audit processes, where it is no longer sufficient to demonstrate that a transaction complies with the arm’s length principle; it is also necessary to explain how economic value is generated within the group.
A tool for assessing economic substance
Tax authorities are paying increasing attention to the economic substance of transactions.
Through the Master File, authorities can identify:
- The location of strategic functions.
- The management of intangible assets.
- The financing centers.
- The global supply chains.
- The allocation of risks within the group.
This information allows for verification of whether the distribution of profits among the various entities effectively reflects the economic reality of the operations.
Risks of Insufficient Documentation
The absence of an adequate Master File can lead to:
- Tax adjustments.
- Challenges to the Transfer Pricing policy.
- An increase in specialized audits.
- International disputes.
- Risks of double taxation.
For this reason, the preparation of this documentation has become a strategic tool for reducing tax contingencies and strengthening the legal certainty of international operations.
In an environment of growing international cooperation and increased information exchange among tax authorities, the Master File has established itself as one of the most important documents within Transfer Pricing regimes in Latin America.
Beyond formal compliance, it is a fundamental tool for demonstrating consistency between a multinational group’s global structure, value creation, and profit allocation under the arm’s length principle.
At TPC Group, we have Transfer Pricing specialists ready to advise multinational companies on the preparation of technical documentation, economic analysis, and compliance with documentation requirements aligned with the OECD’s international standards.
Sources: OECD