This framework report Local file is typically used to describe the intercompany transactions between a contract manufacturer and a principal, with a focus on manufacturer’s local operations.

In such transactions, the local manufacturer undertakes the typical operational functions required to manufacture the products of principal. This may include, but is not limited to, the procurement function, day-to-day manufacturing operations and quality control. The principal company on the other hand sets the strategy for the group, is the owner of the intellectual property of the group and is ultimately responsible for all product development, production, and sales.

The contract manufacturer does not undertake entrepreneurial activities which would result in intangible asset development. The manufacturer often utilises production technology, product specifications, quality assurance and quality control procedures made available by the principal.

In terms of risks, the contract manufacturer will assume only few risks. In particular, it does not assume any inventory (that is for both raw materials and finished products), capacity risk, foreign exchange, bad debt and market risk. In essence, all operational risks that cannot be affected by contract manufacturer are borne by principal.

The framework report Local file is set up in line with the latest OECD BEPS requirements (i.e. Action 13) and contains the required content and technical language. The framework report also provides comprehensive guidance (including a very extensive functional analysis questionnaire) enabling you to tailor the framework report to the specific situation of your local group company and where to typically find specific information.