The idea of keeping a masterfile of transfer pricing documentation was introduced to help cut complexity in transfer pricing documentation throughout Europe. Today advisers think it has helped many taxpayers and tax authorities be more consistent in their documentation expectations, but concerns over implementation remain.
The masterfile, which is endorsed by the European Council and the EU Joint Transfer Pricing Forum, is one single set of standardised documentation that serve as the basis for preparing specific local country documentation.
It has been widely welcomed by commentators who see it as helping taxpayers and authorities adopt a consistent approach to transfer pricing documentation .
“The masterfile approach is perceived rather positively, as it ensures consistency of the documentation,” said Pierre Escault, a transfer pricing partner at Landwell in France
“There is through the masterfile a common ground, and enables taxpayers to gain some efficiency as they do not need to duplicate efforts,” he added.
But some think the documentation system was working well before the change.
“The masterfile endorsed what was already implemented in practice. Local fiscal authorities were requiring documentation from groups before the introduction of European masterfile,” said Franck Berger, a transfer pricing partner at Ernst & Young in France.
Others believe that the introduction of the masterfile benefits business.
“When correctly approached and implemented, this is an efficient and cost-effective tool for business,” said Shiv Mahalingham, a transfer pricing partner at Alvarez and Marsal in the UK.
Despite Berger’s reservations about the need for a masterfile, he does see situations where it benefits taxpayers.
“The more critical issue is when the fiscal authorities provide no precise guidance. The masterfile offers this guidance provided it suffices the local authorities [expectations],” said Berger.
There are concerns about additional costs that may occur with the use of the masterfile system, however.
“Most industries are, with the current financial crisis, worried about effectively bringing down their costs and expenses,” said Angel Calleja, a partner at Garrigues - Taxand in Spain.
“These include, of course, compliance costs which have become a critical matter unless they really are essential. I believe this credibility arena is precisely the key to real success of any new rule,” he added.
One major drawback of the masterfile is that it has not been implemented in exactly the same way throughout the EU.
“There are differences in the EU as some members fulfil the obligations while others don’t. The way it is interpreted is different. In Spain the masterfile is mandatory in other jurisdictions it isn’t,” said Juan Jose Terraza Torra, a transfer pricing partner at Ernst & Young in Spain.
Some see problems when looking into the details of the masterfile.
“The drawback of it is the confusion between form and substance. Some may think that it is enough to have a document called masterfile to comply with the policy,” said Berger.
“The welcome thing about the masterfile is the common background. The problem is in the details,” said Terraza Torra.
These details include different jurisdictions’ approaches to the use of comparables.
“In Portugal there is a hierarchy of comparables. At the end in real life most tax authorities will prefer domestic comparables, although there is room for discussion if the comparable is closer to the business,” said Terraza Torra.
Countries that have only recently introduced the masterfile into their transfer pricing legislation, think that it is too early to gauge its benefits.
We do not have any experience of the masterfile benefiting companies yet,” said Balázs Békés, a partner at Wolf Theiss in Hungary, where the masterfile approach was introduced in January 2010.
However, even at this early stage, Békés can see the potential benefits of using the system.
“It could help, especially for those countries and companies which are of smaller importance for the group, as the masterfile provides a detailed overview of what is happening in the group,” he said.
