For example, from the perspective of an independent enterprise seeking a service, the service providers in that market may or may not be willing or able to supply the service at a price that the independent enterprise is prepared to pay. If the service providers can supply the wanted service within a range of prices that the independent enterprise would be prepared to pay, then a deal will be struck. From the point of view of the service provider, a price below which it would not supply the service and the cost to it are relevant considerations to address, but they are not necessarily determinative of the outcome in every case.
TPG2017 Chapter VII paragraph 7.30
Category: B. Main issues, OECD Transfer Pricing Guidelines (2017), TPG2017 Chapter VII: Special Considerations for Intra-Group Services | Tag: Intra-group services, Reservation price, Service fee, Services, Two-sided analysis
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- TPG2022 Chapter VII paragraph 7.31The method to be used to determine arm’s length transfer pricing for intra-group services should be determined according to the guidelines in Chapters I, II, and III. Often, the application of these guidelines will lead to use of the CUP or a cost-based...
- TPG2022 Chapter VII paragraph 7.30For example, from the perspective of an independent enterprise seeking a service, the service providers in that market may or may not be willing or able to supply the service at a price that the independent enterprise is prepared to pay. If the...
- TPG2022 Chapter VII paragraph 7.36For example, it may be the case that the market value of intra-group services is not greater than the costs incurred by the service provider. This could occur where, for example, the service is not an ordinary or recurrent activity of the service...
- TPG2022 Chapter VII paragraph 7.37While as a matter of principle tax administrations and taxpayers should try to establish the proper arm’s length pricing, it should not be overlooked that there may be practical reasons why a tax administration in its discretion exceptionally might be willing to forgo...
- TPG2022 Chapter VII paragraph 7.3Intra-group arrangements for rendering services are sometimes linked to arrangements for transferring goods or intangibles (or the licensing thereof). In some cases, such as know-how contracts containing a service element, it may be very difficult to determine where the exact border lies between...
- TPG2022 Chapter VII paragraph 7.52This subsection sets out the elements of a simplified charge mechanism for low value-adding intra-group services. This simplified method is premised on the proposition that all low value-adding service costs incurred in supporting the business of MNE group members should be allocated to...
- TPG2022 Chapter VII paragraph 7.9A more complex analysis is necessary where an associated enterprise undertakes activities that relate to more than one member of the group or to the group as a whole. In a narrow range of such cases, an intra-group activity may be performed relating...
- TPG2022 Chapter VII paragraph 7.32It may be necessary to perform a functional analysis of the various members of the group to establish the relationship between the relevant services and the members’ activities and performance. In addition, it may be necessary to consider not only the immediate impact...
Related Case Law
- France vs. Eduard Kettner, March 2012, Administrative Court of Appeals of Paris, No. 10PA04193Kettner was a French distributor of hunting products. Kettner was charged service fees by it’s German parent company for a range of services including packaging, warehouse and inventory management, IT, management fees etc. The tax administration was of the opinion that the fees...
- Korea vs Semiconductor Corp, August 2017, Korean Court, Case No 2015-중-2770TP case – Korea vs Semiconductor Corp, August 2017 Click here for English translation...
- Romania vs A. Romania S.R.L., April 2021, Supreme Administrative Court, Case No 2644/2021A. Romania S.R.L. had purchased services from A. Nederland BV and A. CZ Holding sro, and the costs of the services had been deducted for tax purposes. At issue was whether these services had actually been provided to the benefit of A. Romania...
- Italy vs Rohm and Haas Italia s.r.l, Febuary 2020, Supreme Court Case No 3599 13/02/2020At issue was deduction of VAT on purported costs incurred for intra-group services, which had been deemed non-deductible for tax as well as VAT purposes by the Italien Tax Authorities, as the taxpayer had not been able to prove the effectiveness and relevance...