Plain English
The detailed file for one country. It says what the local company does, which intercompany transactions it has, which method was used for each, and shows the numbers that prove the outcome is arm's length.
Technical definition
The second tier of the BEPS Action 13 standard, containing information on the local entity, its material controlled transactions including amounts and counterparties, the comparability and functional analysis, method selection, and financial information reconciled to the statutory accounts.
Why it matters
This is the document that is actually read in an audit, and in most jurisdictions it is the condition for penalty protection.
How it works in practice
- 01Confirm the local materiality threshold for transactions requiring documentation.
- 02Describe the local entity, management structure and business strategy.
- 03Set out each material transaction with amounts, counterparties and method.
- 04Attach or reference the benchmarking study and the financial reconciliation.
- 05Finalise by the local deadline, usually the tax return filing date.
Worked example
Reconciliation failure
A local file reports tested-party operating margin of 4.1% on a segmented basis, but the segmentation cannot be reconciled to the statutory accounts because a restructuring cost was excluded without explanation. The examiner recomputes at 1.9% and proposes an adjustment. The technical position was fine; the reconciliation was not.
Common mistakes
- Preparing the file after the deadline and losing penalty protection.
- Using a regional template that ignores local content requirements.
- Excluding costs from the tested margin without documented rationale.
Audit red flags
- Financial data in the file that does not tie to the filed accounts.
- Method described differently from the group policy.
Documentation & data
Documents to hold
- Functional and comparability analysis.
- Transaction schedule with amounts and counterparties.
- Benchmarking study and financial reconciliation.
- Copies of relevant intercompany agreements and any APAs or rulings.
Data you need
- Statutory accounts.
- Intercompany ledger extract.
- Segmented P&L with allocation keys.
Who owns this internally: Group tax sets the template; local finance supplies data; advisors often draft.
Jurisdiction notes
- Germany
- Documentation must generally be submitted within a short window after request, with penalties for late or unusable records.
- United States
- Penalty protection under Section 6662 depends on documentation existing at the time the return is filed.
Notes by role
Students & job seekers
Local files are where you will spend year one. Learning to reconcile a segmented P&L quickly is the single most useful skill you can bring.
Frequently asked
- Do I need a local file if I am below the threshold?
- Not necessarily as a formal file, but you generally still need evidence that pricing is arm's length if challenged.
Sources & status
- Primary source
OECD Transfer Pricing Guidelines, Chapter V and Annex II
OECD, 2022
Reference material only, not advice on a specific fact pattern. Reviewed 2026-06-30.
Careers
How this shows up in the job
Volume work, but it teaches jurisdictional detail faster than anything else. Track deadlines and you become indispensable.
Careers in transfer pricing