For multinational groups, transfer pricing documentation is not just a year end exercise. It is a structured record of how related party transactions are priced, why the pricing is arm’s length, and what evidence supports the position.
In India, documentation expectations are high and audits can be detailed. A strong documentation pack reduces litigation risk, supports Form 3CEB reporting, and improves readiness for due diligence and investor reviews.
What Transfer Pricing Documentation Includes
A complete TP documentation framework typically includes:
- Local File for the Indian entity
- Master File for the group
- Country by Country Reporting for eligible groups
- Intercompany agreements and supporting evidence
- Benchmarking and economic analysis
- Working papers and audit defense file
Local File What It Covers
Local File focuses on the Indian entity and its transactions.
Key components
- Overview of business and industry
- Related party profile and group structure
- Details of international transactions and SDTs
- Functional analysis covering functions assets and risks
- Selection of most appropriate method
- Benchmarking analysis and comparable selection
- Financial analysis and adjustments
- Conclusion on arm’s length nature
Evidence to maintain
- Invoices and supporting contracts
- Cost allocation workings for shared services
- Time sheets or activity evidence for services
- Emails and deliverables for management support
- Proof of benefit test for intra group services
Master File What It Covers
Master File provides a group level view.
Key components
- Group organisational structure
- Description of business lines and supply chain
- Intangibles ownership and development
- Intercompany financing arrangements
- Group financials and TP policies n Practical tip: Ensure consistency between Master File and Local File on business description and transaction flows.
Country by Country Reporting CbCR
CbCR applies to eligible groups based on thresholds. It provides jurisdiction wise reporting of:
- Revenue and profit
- Taxes paid and accrued
- Employees and tangible assets
- Main business activities
CbCR is typically filed by the parent entity, with Indian notification requirements where applicable.
Form 3CEB and Reporting Alignment
Form 3CEB is the accountant’s report for international transactions and SDTs. Ensure:
- Transaction listing matches books and intercompany ledgers
- Nature of transaction and section mapping is correct
- Method and benchmarking references are aligned with the TP study
- Supporting schedules are maintained for each clause
Timelines and Practical Planning
A practical timeline approach:
1 During the year maintain agreements and evidence for services and reimbursements 2 Quarterly review related party ledger and transaction mapping 3 Before year end confirm pricing policy and any true ups 4 After year end prepare the TP study and benchmarking 5 Align Form 3CEB schedules and obtain sign offs
Common Documentation Gaps That Trigger Adjustments
- Missing intercompany agreements or unsigned contracts
- Weak benefit evidence for intra group services
- Inconsistent cost allocation keys
- Poor segmentation of financials for tested party
- Inadequate comparables or wrong filters
- Financing transactions without robust interest benchmarking
Practical Transfer Pricing Documentation Checklist
Transaction mapping
1 Identify all international transactions and SDTs 2 Map each transaction to clause and method 3 Reconcile transaction values with books
Agreements and evidence
1 Maintain signed intercompany agreements 2 Maintain invoices and proof of receipt of services 3 Maintain allocation workings and management approvals
Economic analysis
1 Prepare FAR analysis and tested party selection 2 Select method and perform benchmarking 3 Document filters and comparable rejection reasons 4 Maintain computation workings and adjustments
Reporting and audit defense
1 Prepare Form 3CEB schedules aligned to TP study 2 Maintain an audit defense file with key evidence 3 Maintain management representation and sign offs
How Perfect Accounting Can Help
Perfect Accounting and Shared Services supports end to end transfer pricing compliance:
- Transaction mapping and TP policy review
- Local File preparation and benchmarking
- Master File and CbCR coordination support
- Form 3CEB support and reconciliation
- Audit defense and litigation support