Quick Definition
BEPS Action 13 — BEPS Action 13 is an OECD initiative that established a standardized three tiered approach to transfer pricing documentation: the Master File, Local File, and Country by Country Report (CbCR).
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BEPS Action 13 is an OECD initiative that established a standardized three-tiered approach to transfer pricing documentation: the Master File, Local File, and Country-by-Country Report (CbCR). Published in 2015 as part of the OECD's Base Erosion and Profit Shifting (BEPS) project, Action 13 aims to enhance transparency and provide tax authorities with adequate information to assess transfer pricing risks.
Action 13 has been adopted by over 140 jurisdictions through the Inclusive Framework on BEPS, making it the global standard for transfer pricing documentation.
The BEPS Action 13 Final Report (2015), titled "Transfer Pricing Documentation and Country-by-Country Reporting," introduced a three-tiered standardized approach consisting of:
The OECD Transfer Pricing Guidelines (2022) incorporate Action 13 guidance in Chapter V and Annexes I-IV. The Guidelines explain that the purposes of requiring Master File and Local File documentation are to: (1) ensure taxpayers give appropriate consideration to transfer pricing requirements when establishing prices, and (2) provide tax administrations with information to conduct informed transfer pricing risk assessments.
The Three-Tiered Documentation Structure:
| Document | Scope | Purpose | Content |
|---|---|---|---|
| Master File | Global MNE group | Provide "big picture" context | Organizational structure, business description, intangibles, financial activities |
| Local File | Single jurisdiction | Demonstrate arm's length compliance | Transaction descriptions, functional analysis, benchmarking |
| CbCR | All jurisdictions | Enable risk assessment | Revenue, profit, taxes, employees, assets by country |
Filing Thresholds:
| Document | OECD Recommended Threshold | Common Variations |
|---|---|---|
| Master File | €750M consolidated revenue (or local threshold) | Varies: €50M-€750M |
| Local File | Based on local rules | Transaction-value thresholds common |
| CbCR | €750M consolidated revenue | Generally consistent globally |
Implementation Timeline:
| Year | Milestone |
|---|---|
| 2015 | BEPS Action 13 Final Report published |
| 2016 | Initial jurisdictions adopt legislation |
| 2017 | First CbCR filings (fiscal years starting 2016) |
| 2018+ | Widespread global implementation |
| 2020+ | Over 140 jurisdictions in Inclusive Framework |
Global Standardization: Before Action 13, documentation requirements varied dramatically by country. Action 13 created a common framework, reducing compliance burden for MNEs operating across multiple jurisdictions while giving tax authorities comparable information globally.
MNE Profile: USCo (parent) with subsidiaries in Germany, UK, Japan, and Brazil. Consolidated revenue: €2 billion.
Action 13 Documentation Requirements:
| Document | Preparer | Jurisdictions Served | Key Contents |
|---|---|---|---|
| Master File | USCo (headquarters) | All jurisdictions | Global value chain, IP ownership, TP policies |
| Local File - Germany | GermanCo | Germany | German transactions, local benchmarking |
| Local File - UK | UKCo | UK | UK transactions, local benchmarking |
| Local File - Japan | JapanCo | Japan | Japanese transactions, local benchmarking |
| Local File - Brazil | BrazilCo | Brazil | Brazilian transactions, local benchmarking |
| CbCR | USCo | Exchanged globally | Revenue, profit, taxes, employees by jurisdiction |
Information Flow Under Action 13:
| Objective | How Achieved |
|---|---|
| Transparency | Standardized disclosure of global operations |
| Risk Assessment | CbCR enables high-level risk identification |
| Audit Efficiency | Consistent documentation reduces information requests |
| Profit Shifting Detection | CbCR highlights misalignments between profit and substance |
| Compliance Burden Reduction | Standardization reduces duplicative requirements |
CbCR Is for Risk Assessment Only: The OECD explicitly states that CbCR data should not be used as a basis for transfer pricing adjustments. CbCR identifies potential risks for further investigation; it doesn't prove or disprove arm's length compliance. Local File analysis remains essential for demonstrating compliance.
BEPS Action 13 itself is OECD "soft law"—not legally binding until adopted into domestic legislation. However, over 140 jurisdictions have implemented Action 13 through their domestic laws, making compliance effectively mandatory for MNEs operating in these countries. Non-member countries in the Inclusive Framework also commit to implementing the minimum standards.
The €750 million consolidated group revenue threshold was selected to capture the largest MNEs while exempting smaller groups from CbCR reporting. This threshold applies to approximately 10-15% of MNEs but covers the vast majority of global trade value. Local File and Master File thresholds vary by jurisdiction and may be lower.
Filing requirements vary by jurisdiction. CbCR is typically filed with the tax authority of the ultimate parent entity and exchanged automatically with other jurisdictions. Master File and Local File requirements vary—some jurisdictions require filing with the return; others require documents to be available upon request within specified timeframes.
The OECD continues to refine Action 13 guidance. Key developments include: enhanced guidance on CbCR data use (2017), public CbCR initiatives (ongoing), updated Model Legislation, and consideration of digital filing formats (XML schema). The EU has adopted public CbCR requirements for certain large MNEs.
Penalties vary by jurisdiction and document type. CbCR penalties can be substantial—up to €1 million in some jurisdictions for failure to file. Master/Local File penalties typically relate to documentation failures and may include penalty surcharges on any resulting tax adjustment, shifted burden of proof, or fixed penalties per document.
Action 13 supports the entire BEPS framework by providing transparency. Actions 8-10 (transfer pricing for intangibles, risks, and other high-risk transactions) rely on Action 13 documentation for implementation. Action 5 (harmful tax practices) uses CbCR data for substance assessment. The documentation framework enables enforcement of all transfer pricing-related BEPS actions.
The OECD explicitly discourages this. The Guidelines state CbCR data should be used for high-level risk assessment only—not as a substitute for detailed transfer pricing analysis or as a basis for proposing adjustments. However, some tax authorities have used CbCR data to initiate audits that lead to adjustments based on subsequent analysis.