• COVID-19
  • Insights
  • Who We Help
    •   Industrial Automation
    •   Manufacturing & Distribution
    •   A&E Professional Services
    •   International Businesses
      • ◦   Expanding Outside the U.S.
      • ◦   Expanding to the U.S.
  • Services
    •   COVID-19
      • ◦   Cash Flow Confidence Assessment
      • ◦   Maximize Your Loan Forgiveness
      • ◦   5 Key Focus Areas
      • ◦   COVID-19 Resource Center
    •   Client Accounting
      • ◦   Software Solutions
      • ◦   Accounting Support
      • ◦   Reporting
    •   Tax
      • ◦   R&D Tax Credit
      • ◦   Tax Credits & Incentives
      • ◦   Tax Structure
      • ◦   Federal Tax
      • ◦   State & Local Tax
      • ◦   Personal Tax
      • ◦   Other Tax Filings
    •   Advisory & Assurance
      • ◦   Assurance Levels
      • ◦   Reporting
      • ◦   Employee Benefit Plan Audits
      • ◦   Technical Accounting & Reporting
    •   Consulting
      • ◦   Data Analytics
      • ◦   Transaction Services
      • ◦   Business Planning
      • ◦   Succession & Exit Strategies
    •   International
      • ◦   International Tax
      • ◦   Foreign Direct Investment
      • ◦   Global Expansion
      • ◦   International Accounting
  • Events
  • Careers
    •   Why C&M
    •   Students
      • ◦   Campus Events
      • ◦   Internships
      • ◦   Reach Beyond Program
    •   Experienced Professionals
      • ◦   Team member profile videos
    •   Opportunities
    •   Employee Journals
    •   Office Tour
  • About Us
    •   How We Help
      • ◦   Service Approach
      • ◦   Affiliations
      • ◦   Communications & Technology
    •   Meet Our Team
    •   Testimonials
    •   Our Videos
    •   Our Story
  • Contact Us
  • Subscribe
CHANGE COUNTRY:
  • United States
  • 中国
  • Client Login
Clayton & McKervey Logo
  • COVID-19
  • Insights
  • Who We Help
  • Services
  • Events
  • Careers
  • About Us
  • Contact Us
  • Subscribe
    • Most Recent Insights
  1. Home
  2. Insights
  3. New Transfer Pricing Standards Raise the Bar and Widen the Net— Starting at $20 Million in Revenue

New Transfer Pricing Standards Raise the Bar and Widen the Net— Starting at $20 Million in Revenue

Posted by Clayton & McKervey on April 27, 2017

Clayton & McKervey Clayton & McKervey

Major trading partners implement stringent new transfer pricing rules

Transfer pricing has long been a tax concern for the largest multinationals and news articles on Apple, Starbucks, Google and others have raised the profile of this contentious tax issue. While the biggest companies (with global revenues greater than $850 million/ €750 million) have the most extensive new regulations, many middle market companies will be subject to the same requirements. Most notably, some companies with global revenues of €100 million, €50 million and even $20 million are now subject to the same higher transfer pricing documentation standards as large multinationals.

New Documentation Rules Require Far More Information on Cross-Border Transactions

New transfer pricing documentation standards require companies to provide information on both global business operations (a “Master File”) available to all tax authorities and a transfer pricing analysis (a “Local File”) for tax authorities in countries where a multinational operates. The parent company tax authority would have access to the Master File and all Local Files.

In Clayton & McKervey’s experience, these new requirements are more prescriptive both in terms of the volume of information required and the details that must be included in a report. For instance, a Master File should include written descriptions of important drivers of business profit, the supply chain for the five largest product lines, major service agreements within the group, and an explanation of which companies own intangibles by country.

By contrast, a Local File for each country, requires a thorough explanation of local business strategies, functions, risks and assets. Each Local File must also include an explanation of intercompany transactions, financial results and selection of the “Best/Most Appropriate Method” for benchmarking transfer prices.

Mid-sized Companies Are No Exception

While new documentation standards have been publicized for the largest multinationals (group revenues greater than $850 million/ €750 million), many countries are also requiring Master Files and Local Files for much smaller companies; some as low as $20 million in global revenues.

As an example, the Netherlands now requires companies with global group revenues of €50 million to prepare Master Files and Local Files to comply with Dutch transfer pricing documentation rules. Therefore, US companies with revenues greater than €50 million and Dutch subsidiaries would be subject to these Master File/Local File standards.

While countries such as the US and Canada do not explicitly have Master File and Local File thresholds for smaller companies, there is a significant increase in recent transfer pricing audit requests. Both the Internal Revenue Service and Canada Revenue Agency are regularly demanding transfer pricing documentation during tax audits, with a growing interest in middle-market companies.

New Transfer Pricing Documentation Thresholds
Country Master File/Local File Documentation Threshold New Development?
Austria
  • €50 million in Group Revenues
Yes
Belgium
  • €50 million in Group Revenues or 100 employees
Yes
Denmark
  • DKK 125 million (~$20 million) in Group Revenues and more than 250 employees
Yes
Germany
  • €100 million of Local German company revenue
Yes
Netherlands
  • €50 million in Group Revenues
Yes
Poland
  • €20 million in Group Revenues for Master File
  • Lower thresholds for Local File, incl. benchmarking studies
Yes
Spain
  • €45 million in Group Revenues
Yes
Sweden
  • SEK 400 million (~$44.3 million) in Group Revenues and more than 250 employees
Yes
Switzerland
  • Thresholds to be announced
Yes
UK
  • Thresholds to be announced
Yes
Australia
  • Modified Local File lodgment for companies with transactions greater than A$2 million
  • Details on transfer pricing methodologies utilized
  • Submission of Intercompany Agreements to the ATO
Yes
Mexico
  • MXP 671 million (~$35.8 million) in Group Revenue for Master File – submitted to government
  • Local documentation still required for companies with Mexican revenues of 13 million MXP (~$US1 million)
Yes
Israel
  • Thresholds to be announced
Yes
China
  • RMB 200 million (~$29 million) of tangible property
  • RMB 40 million (~$5.8 million) for intangible property or services
No
India
  • Thresholds to be announced
  • Documentation standards still apply
Yes
Japan
  • Local File for intercompany transactions greater than 5 billion Yen (~$45.5 million); or
  • Local File for intangible property transactions greater than 300 million Yen (~$2.8 million)
Yes
South Korea
  • KRW 100 billion (~$176 million) in local country revenue and KRW 50 billion (~$88 million) in intercompany transactions
Yes

 

Bottom Line

Multinationals should revisit their transfer pricing documentation approach in light of these more stringent tax authority standards. The Master File/Local File requirements provide greater visibility over a company’s operations to auditors, raising tax risks considerably.

*Please note that this list does not include every country with the new Master File and Local File requirements as of April 2017.

Our team is always ready to help.

Please contact us for more information.

Clayton & McKervey

Clayton & McKervey

Contact Clayton & McKervey

related news

How to Calculate R&D Tax Credits

As we’ve seen in the first two installments of this series, business owners often miss out on the R&D tax credit opportunity and the bottom-line infusion it can provide. Many…

Read full story

Doing Business in Mexico: What to Expect this Year

Without a doubt, this year will be interesting for Mexico. To start, it’s an election year and we all know what that means…a lot of uncertainty. As the global pandemic…

Read full story

What Expenses Qualify for R&D Tax Credits?

The R&D tax credit is one of the most overlooked opportunities to boost your bottom line. Many business owners fail to claim it under the mistaken belief that they’re not…

Read full story

Clayton & McKervey Launches The Sound of Automation Podcast

Media Contact: Denise Asker, dasker@claytonmckervey.com; 248.936.9488 Southfield, Mich.—February 17, 2021—Clayton & McKervey, a certified public accounting and business advisory firm helping growth-driven companies compete in the global marketplace, is excited…

Read full story

Misconceptions About the Research & Experimentation Tax Credit

As companies put more emphasis on Industry 4.0 and business processes become more automated and accessible, the opportunities for Research & Experimentation tax credits increase. The Research and Experimentation (R&E)…

Read full story

Categories

Jump directly to the topics that matter to you most.

  • A&E Professional Services
  • About Us
  • Advisory & Assurance
  • Business Owners
  • C&M Press Releases
  • Careers
  • China Consulting
  • Clayton & McKervey
  • Client Accounting Services
  • Consulting
  • COVID-19
  • Data Analytics
  • Estate Planning
  • Expanding Outside the U.S.
  • Expanding to the U.S.
  • From the President
  • Industrial Automation
  • International
  • Manufacturing & Distribution
  • Mexico Consulting
  • Podcasts
  • Private Client Services
  • Tax & Tax Credits
  • Transaction Services
  • Videos

Authors

Read news direct from our managers and stakeholders.

    • Ben Smith
    • Beth Butchart
    • Bryan Powrozek
    • Carlos Calderon
    • Casey Haggerty
    • Clayton & McKervey
    • Dave Van Damme
    • Denise Asker
    • Eric Lin
    • Jim Biehl
    • Julie Killian
    • Kevin Johns
    • Margaret Amsden
    • Miroslav Georgiev
    • Nina Wang
    • Rob Dutkiewicz
    • Ruben Ramirez
    • Sarah Russell
    • Sue Tuson
    • Tarah Ablett
    • Teresa Gordon
    • Tim Finerty
    • Tim Hilligoss
    • Wendy Reedy

Additional Resources

Additional news from Clayton & McKervey can be found below.

  • Subscribe to our email newsletter
  • View upcoming events
  • Contact us to let us know how we can help you
  • Main Content
  • Related Insights

New Transfer Pricing Standards Raise the Bar and Widen the Net— Starting at $20 Million in Revenue

Posted by Clayton & McKervey on April 27, 2017

Clayton & McKervey

Major trading partners implement stringent new transfer pricing rules

Transfer pricing has long been a tax concern for the largest multinationals and news articles on Apple, Starbucks, Google and others have raised the profile of this contentious tax issue. While the biggest companies (with global revenues greater than $850 million/ €750 million) have the most extensive new regulations, many middle market companies will be subject to the same requirements. Most notably, some companies with global revenues of €100 million, €50 million and even $20 million are now subject to the same higher transfer pricing documentation standards as large multinationals.

New Documentation Rules Require Far More Information on Cross-Border Transactions

New transfer pricing documentation standards require companies to provide information on both global business operations (a “Master File”) available to all tax authorities and a transfer pricing analysis (a “Local File”) for tax authorities in countries where a multinational operates. The parent company tax authority would have access to the Master File and all Local Files.

In Clayton & McKervey’s experience, these new requirements are more prescriptive both in terms of the volume of information required and the details that must be included in a report. For instance, a Master File should include written descriptions of important drivers of business profit, the supply chain for the five largest product lines, major service agreements within the group, and an explanation of which companies own intangibles by country.

By contrast, a Local File for each country, requires a thorough explanation of local business strategies, functions, risks and assets. Each Local File must also include an explanation of intercompany transactions, financial results and selection of the “Best/Most Appropriate Method” for benchmarking transfer prices.

Mid-sized Companies Are No Exception

While new documentation standards have been publicized for the largest multinationals (group revenues greater than $850 million/ €750 million), many countries are also requiring Master Files and Local Files for much smaller companies; some as low as $20 million in global revenues.

As an example, the Netherlands now requires companies with global group revenues of €50 million to prepare Master Files and Local Files to comply with Dutch transfer pricing documentation rules. Therefore, US companies with revenues greater than €50 million and Dutch subsidiaries would be subject to these Master File/Local File standards.

While countries such as the US and Canada do not explicitly have Master File and Local File thresholds for smaller companies, there is a significant increase in recent transfer pricing audit requests. Both the Internal Revenue Service and Canada Revenue Agency are regularly demanding transfer pricing documentation during tax audits, with a growing interest in middle-market companies.

New Transfer Pricing Documentation Thresholds
Country Master File/Local File Documentation Threshold New Development?
Austria
  • €50 million in Group Revenues
Yes
Belgium
  • €50 million in Group Revenues or 100 employees
Yes
Denmark
  • DKK 125 million (~$20 million) in Group Revenues and more than 250 employees
Yes
Germany
  • €100 million of Local German company revenue
Yes
Netherlands
  • €50 million in Group Revenues
Yes
Poland
  • €20 million in Group Revenues for Master File
  • Lower thresholds for Local File, incl. benchmarking studies
Yes
Spain
  • €45 million in Group Revenues
Yes
Sweden
  • SEK 400 million (~$44.3 million) in Group Revenues and more than 250 employees
Yes
Switzerland
  • Thresholds to be announced
Yes
UK
  • Thresholds to be announced
Yes
Australia
  • Modified Local File lodgment for companies with transactions greater than A$2 million
  • Details on transfer pricing methodologies utilized
  • Submission of Intercompany Agreements to the ATO
Yes
Mexico
  • MXP 671 million (~$35.8 million) in Group Revenue for Master File – submitted to government
  • Local documentation still required for companies with Mexican revenues of 13 million MXP (~$US1 million)
Yes
Israel
  • Thresholds to be announced
Yes
China
  • RMB 200 million (~$29 million) of tangible property
  • RMB 40 million (~$5.8 million) for intangible property or services
No
India
  • Thresholds to be announced
  • Documentation standards still apply
Yes
Japan
  • Local File for intercompany transactions greater than 5 billion Yen (~$45.5 million); or
  • Local File for intangible property transactions greater than 300 million Yen (~$2.8 million)
Yes
South Korea
  • KRW 100 billion (~$176 million) in local country revenue and KRW 50 billion (~$88 million) in intercompany transactions
Yes

 

Bottom Line

Multinationals should revisit their transfer pricing documentation approach in light of these more stringent tax authority standards. The Master File/Local File requirements provide greater visibility over a company’s operations to auditors, raising tax risks considerably.

*Please note that this list does not include every country with the new Master File and Local File requirements as of April 2017.

Our team is always ready to help.

Please contact us for more information.

Clayton & McKervey

Contact Clayton & McKervey

related news

How to Calculate R&D Tax Credits

As we’ve seen in the first two installments of this series, business owners often miss out on the R&D tax credit opportunity and the bottom-line infusion it can provide. Many…

Read full story

Doing Business in Mexico: What to Expect this Year

Without a doubt, this year will be interesting for Mexico. To start, it’s an election year and we all know what that means…a lot of uncertainty. As the global pandemic…

Read full story

What Expenses Qualify for R&D Tax Credits?

The R&D tax credit is one of the most overlooked opportunities to boost your bottom line. Many business owners fail to claim it under the mistaken belief that they’re not…

Read full story

Clayton & McKervey Launches The Sound of Automation Podcast

Media Contact: Denise Asker, dasker@claytonmckervey.com; 248.936.9488 Southfield, Mich.—February 17, 2021—Clayton & McKervey, a certified public accounting and business advisory firm helping growth-driven companies compete in the global marketplace, is excited…

Read full story

Misconceptions About the Research & Experimentation Tax Credit

As companies put more emphasis on Industry 4.0 and business processes become more automated and accessible, the opportunities for Research & Experimentation tax credits increase. The Research and Experimentation (R&E)…

Read full story

Categories

Jump directly to the topics that matter to you most.

  • A&E Professional Services
  • About Us
  • Advisory & Assurance
  • Business Owners
  • C&M Press Releases
  • Careers
  • China Consulting
  • Clayton & McKervey
  • Client Accounting Services
  • Consulting
  • COVID-19
  • Data Analytics
  • Estate Planning
  • Expanding Outside the U.S.
  • Expanding to the U.S.
  • From the President
  • Industrial Automation
  • International
  • Manufacturing & Distribution
  • Mexico Consulting
  • Podcasts
  • Private Client Services
  • Tax & Tax Credits
  • Transaction Services
  • Videos

Authors

Read news direct from our managers and stakeholders.

  • Ben Smith
  • Beth Butchart
  • Bryan Powrozek
  • Carlos Calderon
  • Casey Haggerty
  • Clayton & McKervey
  • Dave Van Damme
  • Denise Asker
  • Eric Lin
  • Jim Biehl
  • Julie Killian
  • Kevin Johns
  • Margaret Amsden
  • Miroslav Georgiev
  • Nina Wang
  • Rob Dutkiewicz
  • Ruben Ramirez
  • Sarah Russell
  • Sue Tuson
  • Tarah Ablett
  • Teresa Gordon
  • Tim Finerty
  • Tim Hilligoss
  • Wendy Reedy

Additional Resources

Additional news from Clayton & McKervey can be found below.

  • Subscribe to our email newsletter
  • View upcoming events
  • Contact us to let us know how we can help you

Website

  • COVID-19
  • Insights
  • Who We Help
  • Services
  • Events
  • Careers
  • About Us
  • Contact Us
  • Subscribe

Location

+1 248.208.8860
2000 Town Center
Suite 1800
Southfield, MI
48075 | USA

Connect

  • Events
  • Newsletter
  • Client Login

Social

  • LinkedIn
  • Facebook
  • Twitter
  • Glassdoor
  • YouTube
  • Instagram

Awards

DFP Top Work Places Best & Brightest
Prime Global

Tax | Accounting | Assurance | Consulting | Highly technical and accessible team of CPAs helping growth driven, closely held, middle market companies compete in the global marketplace. Michigan-based accountants and advisors focused on helping business owners in the United States and throughout Europe and China.

Privacy Policy Disclaimer

© 2021 Clayton & McKervey