Several governments want to be OECD members, by which are implementing a set of actions approximating the standards suggested by this organization.
Action 13 is one of the OECD’S suggestions, arising the “Master File” obligation. This file contains the specific documentation of the multinational group, which aims to provide an overview of the group activities.
Conversely, you may wonder: Why is it important?
The OECD’s actions described through the BEPS plan arise when large multinational companies can misprice with their related parties to shift their profits to preferential tax regime jurisdictions. Hence, it is reflected in a considerable income tax decrease regarding the obligations set forth by the jurisdictions where the former is levied or even is not anywhere.
Regarding the aforementioned, action 13 of the BEPS Plan referring to the Transfer Pricing documentation has proposed a new Transfer Pricing documentation design enabling tax authorities to be better informed regarding taxpayers and the multinational group they belong to.
This design established a new three-tier documentation standard, being the Master File one of them.
According to action 13 of the BEPS Plan, the Master File is intended to ease competent tax administrations with an overview of the group business and their related parties, including the nature of their business transactions, economic activities, and general Transfer Pricing policies to enable tax authorities to assess significant Transfer Pricing risks.
Generally, the Master File aims to provide a high-level view to align the Transfer Pricing practices with economic, global, legal, financial, and tax contexts.
The Master File provides relevant information about the group, which may be grouped into five categories: a) Organizational structure, b) Business(es) description of the group, c) Intangibles, d) Intercompany services and centralized financing transactions, and e) Group’s tax and financial positions.
One of the main taxpayers’ issues is the access to financing and functional information of the other member companies of the group. Most of the cases, including the parent company of the group, is reluctant to share the financing and functional information of their subsidiaries due to its confidentiality for the group, being a high risk for taxpayers filing the obligation due to non-compliance or omission regarding the information to be declared, resulting in possible fines that could arise in eventual tax audit procedures they are subject to.