Master file and local file transfer pricing documentation: a guide for mid-sized international groups

For finance directors of mid-sized groups with overseas operations, transfer pricing documentation has moved from a large-multinational concern to something HMRC increasingly expects most cross-border groups to have in place. Two documents sit at the centre of this: the master file and the local file. Understanding what each contains, who is required to hold one, and what happens if they’re missing is now a core part of managing group tax risk.

What the master file and local file actually contain

The master file and local file follow the OECD’s BEPS Action 13 framework, incorporated into HMRC’s requirements for UK accounting periods beginning on or after 1 April 2023.

The master file provides a group-wide overview: the MNE’s (multi-national entity) organisational structure, its business lines and value drivers, its intangible assets, its intercompany financing arrangements, and its overall transfer pricing policies. It’s designed to give HMRC – or any tax authority in the group’s other jurisdictions for that matter – a single, consistent picture of how the group operates globally.

The local file is entity-specific. It sets out the UK entity’s own controlled transactions in detail i.e. what’s being transacted, with which related party, and crucially, the analysis justifying that the pricing is arm’s length. Because it’s entity-based, materiality is judged from the UK entity’s perspective rather than the group’s as a whole; HMRC guidance allows a de minimis threshold of £1 million per category of transaction, below which that category doesn’t need to be reported in the Local File.

Alongside these, HMRC also requires a Summary Audit Trail – a questionnaire setting out the main steps taken in preparing the local file, intended to demonstrate that proper process, not just a plausible-looking document, sat behind the numbers.

What type of companies are required to hold a master file and local file?

The formal requirement to maintain a master file and local file applies to groups with consolidated global revenues exceeding €750 million. Below that threshold, there’s no statutory obligation to produce the OECD-format documents specifically – but HMRC has been clear that the underlying standard still applies. Even smaller groups within scope of the general transfer pricing rules are expected to price intercompany transactions at arm’s length and hold evidence to support that, and HMRC’s own guidance treats OECD-aligned documentation as the recommended way of demonstrating this, even where a group sits below the €750 million test.

In practice, this means a growing mid-sized group with an overseas subsidiary shouldn’t treat the €750 million threshold as a reason to have nothing in place – only as the point at which the specific master file/local file format becomes a legal requirement rather than best practice.

Neither document needs to be submitted alongside the corporation tax return. Both must instead be maintained and made available to HMRC within 30 days of a request – which means they need to exist and be current well before that request ever arrives, not assembled in a panicked rush retrospectively once an enquiry opens.

The penalties for getting it wrong

Where a qualifying group fails to maintain the required master file and local file, or fails to produce them within the 30-day window, HMRC applies a presumption of carelessness – carrying a maximum penalty of 30% of the potential lost revenue involved. This sits on top of a standard fixed penalty of £3,000 for failing to keep or produce transfer pricing documentation at all.

That presumption of carelessness matters beyond the immediate penalty, because it shifts the burden onto the business to demonstrate reasonable care was taken, rather than requiring HMRC to prove fault. The government has indicated this presumption can only be displaced where documentation is produced on request and can be shown to have been prepared in advance of the corporation tax return being filed – meaning documentation created after the fact, in response to an HMRC letter, is unlikely to help.

Given HMRC’s transfer pricing yield almost doubled to £3,387 million in the 2024-25 tax year, and its international tax team has grown to 392 full-time-equivalent staff, groups that treat documentation as a box to tick only when asked are taking on meaningfully more risk than they may realise.

Why this matters more for groups without an in-house international tax function

Larger multinationals typically have dedicated tax teams managing this as business as usual. Mid-sized groups expanding overseas for the first time – often through an acquisition, a new subsidiary, or a joint venture – rarely have that infrastructure, and the master file and local file requirement can arrive faster than expected once group revenue crosses the threshold or HMRC’s expectations of “best practice” documentation start to bite.

This is also where being part of an international accountancy network becomes practically useful rather than simply a badge on a website. As a member of UHY, a network with 340 business centres in 95 countries, UHY Williamson Croft can draw on local expertise in the jurisdictions where a client’s overseas operations actually sit -which matters for transfer pricing specifically, because a master file needs to reflect group-wide policy consistently, and a local file needs to stand up to scrutiny from that country’s own tax authority, not just HMRC.

Getting the documentation right from the outset

For finance directors, the practical takeaway is to treat master file and local file preparation as a live compliance function, not a one-off project. Structures change, new entities are added, and intercompany arrangements evolve – documentation needs to be reviewed and refreshed accordingly, ideally annually and in line with each accounting period, rather than rebuilt from scratch when HMRC asks.

If your group is approaching the €750 million threshold, already required to hold this documentation, or simply wants to bring existing transfer pricing records up to OECD standard, contact Daniel Moon below or get in touch with our team to discuss where your current position stands.