Master File – what it is and who it applies to

For taxpayers subject to transfer pricing compliance obligations, October and November tend to be particularly intensive months. Preparing documentation, gathering the necessary information, and submitting TPR forms undoubtedly require considerable time and attention.

However, there is one further important obligation that should not be overlooked. We invite you to read our article, where we provide a detailed overview of the Master File, a key component of group-level transfer pricing documentation. You will learn what steps must be taken to ensure compliance and how to mitigate potential risks in the event of a tax audit.

What is the Master File?

In today’s global business environment, the Master File plays a pivotal role in ensuring transparency within multinational corporate groups.

In simple terms, the Master File contains information about the entire group of related entities. Its primary purpose is to provide a high-level overview of the group’s operations, including its organisational structure, significant intangibles, and key intercompany financial transactions. Not only does the Master File help illustrate how a group operates, but it also enables tax authorities to assess whether intragroup transactions are conducted on an arm’s length basis.

Who is required to prepare a Master File?

The obligation to prepare a Master File applies to related entities that cumulatively meet the following criteria:

• They are required to prepare Local File documentation;
• They form part of a corporate group that prepares consolidated financial statements using either the full consolidation or proportional consolidation method; and
• The consolidated revenue of the group exceeded PLN 200 million (or the equivalent amount) in the financial year preceding the year being documented.

What is the deadline for preparing the Master File?

The deadline for preparing the Master File is the end of the twelfth month following the close of the tax year. For taxpayers whose tax year aligns with the calendar year, this means the Master File for 2023 must be finalised by 31 December. The window for timely compliance is therefore rapidly closing.

What should the Master File contain?

The Master File should include the following key components:

• Overview of the Group – including the group’s organisational and ownership structure, a description of the group’s principal business activities, and any significant restructuring activities undertaken during the tax year.
• Description of Intangible Assets – including a general outline of the group’s strategy concerning intangibles, together with information on significant intangibles such as patents, trademarks, and know-how.
• Intragroup Financial Activities – including a description of how the group’s operations are financed, identification of any entities performing central financing functions, and detailed information on material intragroup financial transactions such as loans, guarantees, or other financial instruments.
• Financial and Tax Information – including consolidated financial statements and details of the group’s tax policy.

It is important to emphasise that preparing the Master File requires not only accuracy but also a thorough understanding of the group’s business model. Consequently, the process often involves collaboration across various departments, including accounting, finance, and legal.

Although the Master File is typically prepared by the group’s ultimate parent entity, the obligation may sometimes fall on the Polish entity. We therefore highlight the importance of obtaining information on intangibles and intragroup financing from the group’s headquarters. Based on our experience, this process can be time-consuming, as such information is not always readily available at group level. As such, it is vital not to delay the data-gathering process.

Language requirements

Entities belonging to international corporate groups often receive the Master File directly from the central group entity, with the documentation commonly prepared in English. This raises the question: is this compliant with Polish transfer pricing regulations?

The Master File may indeed be prepared in English. However, Polish tax law provides that the tax authority may request a Polish translation. In such cases, the taxpayer is required to submit the translation within 30 days.

It is also important to note that centrally prepared Master Files may not always contain all the specific elements required under Polish regulations. Therefore, receiving a Master File from the group does not exempt the Polish entity from verifying its completeness and, if necessary, supplementing it with additional information in an annex.

Summary

The Master File is not only a mandatory element of transfer pricing documentation (provided the above-mentioned conditions are met), but also a tool that promotes transparency within multinational groups. In light of increasing globalisation and the growing complexity of international transactions, the importance of the Master File will only continue to rise.

As the deadline for majority taxpayers is fast approaching, we encourage you to make use of our expertise in the preparation, review, or supplementation of group-level transfer pricing documentation.

We also invite you to explore the full range of services offered by MDDP in the area of global transfer pricing >> https://www.mddp.pl/global-transfer-pricing/