Transfer pricing documentation: what a Local File has to support

A Local File is often treated as a compliance artefact to be produced once a year. That framing produces a document that describes prices without explaining them, which is precisely the document that fails to help when it is needed.

The purpose is to demonstrate that a price was set on a considered basis. If no such basis existed, documentation cannot manufacture one retrospectively.

A functional analysis: which entity performs which functions, which assets each uses, and which risks each bears. This is the part groups find hardest, because it requires asking people what they actually do.

A method, and the reason for it. Selecting a pricing method is a judgement, and the file has to record why the chosen method fits these transactions better than the alternatives.

Comparable data supporting the outcome. Benchmarking is evidence, not decoration, and it has to be reproducible by someone else.

A large proportion of UAE groups have intra-group arrangements with no written agreement — management charges, financing, licensing, shared services. The absence is common and it is fixable, but it has to be addressed as part of the work rather than glossed over.

Documenting what the arrangement actually is, and then putting it on a proper footing going forward, is usually a substantial part of a first transfer pricing engagement.

Analysis prepared alongside the transaction is contemporaneous evidence. The same analysis prepared later is a reconstruction, and it is treated as one.

The practical implication is that transfer pricing work belongs in the annual cycle, not in the response to a query.