How do you align your master file with your value chain analysis?

1 Understand the purpose

The purpose of the master file is to provide a high-level overview of your group's business model, strategy, and governance. It should explain how your group creates, enhances, protects, and exploits value through its operations and transactions. The purpose of the value chain analysis is to break down your group's activities into primary and support functions, and to assess how they contribute to your competitive advantage and profitability. It should show how your group manages and allocates its resources, risks, and functions across different entities and locations.

2 Use consistent data sources

To align your master file with your value chain analysis, you need to use consistent and reliable data sources for both documents. You should use the same financial statements, management reports, market research, contracts, and policies to support your assertions and calculations. You should also ensure that the data is updated regularly and reflects the current economic reality of your group. If there are any discrepancies or changes in the data, you should explain the reasons and implications for your transfer pricing.

3 Highlight the key value drivers

One of the main challenges of aligning your master file with your value chain analysis is to identify and quantify your key value drivers, which are the factors that make your group unique and profitable. These could include your intangible assets, such as patents, trademarks, know-how, or customer relationships, or your operational capabilities, such as innovation, quality, or efficiency. You should highlight these value drivers in both documents and explain how they are linked to your group's strategy, performance, and transfer pricing policy.

4 Align the functional analysis

Another challenge of aligning your master file with your value chain analysis is to align the functional analysis, which is the description of the roles and responsibilities of each entity within your group. You should ensure that the functional analysis in your master file is consistent with the value chain analysis in terms of the nature, scope, and complexity of the functions performed, the assets used, and the risks assumed by each entity. You should also demonstrate how the functional analysis supports your transfer pricing method and the arm's length principle.

5 Address the interdependencies

A final challenge of aligning your master file with your value chain analysis is to address the interdependencies among your group's entities and functions. You should acknowledge that your group operates as a single economic unit and that its value creation is not isolated to individual entities or functions. You should also explain how your group coordinates and integrates its activities and transactions across different markets and jurisdictions, and how this affects your transfer pricing outcomes.

By aligning your master file with your value chain analysis, you can enhance the transparency and credibility of your transfer pricing documentation. You can also reduce the risk of tax audits and disputes, and optimize your tax planning and compliance.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?