TPG2017 Chapter VII paragraph 7.34

Category: B. Main issues, OECD Transfer Pricing Guidelines (2017), TPG2017 Chapter VII: Special Considerations for Intra-Group Services | Tag: , , , , ,
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When an associated enterprise is acting only as an agent or intermediary in the provision of services, it is important in applying a cost based method that the return or mark-up is appropriate for the performance of an agency function rather than for the performance of the services themselves. In such a case, it may not be appropriate to determine arm’s length pricing as a mark-up on the cost of the services but rather on the costs of the agency function itself. For example, an associated enterprise may incur the costs of renting advertising space on behalf of group members, costs that the group members would have incurred directly had they been independent. In such a case, it may well be appropriate to pass on these costs to the group recipients without a mark-up, and to apply a mark-up only to the costs incurred by the intermediary in performing its agency function.






Related Guidelines

  1. TPG2022 Chapter VII paragraph 7.35Depending on the method being used to establish an arm’s length charge for intra-group services, the issue may arise whether it is necessary that the charge be such that it results in a profit for the service provider. In an arm’s length transaction,...
  2. 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...
  3. 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...
  4. TPG2022 Chapter VII paragraph 7.34When an associated enterprise is acting only as an agent or intermediary in the provision of services, it is important in applying a cost based method that the return or mark-up is appropriate for the performance of an agency function rather than for...
  5. 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...
  6. TPG2022 Chapter VII paragraph 7.62Subject to the provisions of paragraph 7.55, the charge for services to any member of the electing MNE group shall be the sum of (i) the costs incurred by another group member in providing services specifically to the member under the second step...
  7. TPG2022 Chapter VII paragraph 7.13Similarly, an associated enterprise should not be considered to receive an intra-group service when it obtains incidental benefits attributable solely to its being part of a larger concern, and not to any specific activity being performed. For example, no service would be received...
  8. TPG2022 Chapter VII paragraph 7.57As a second step, the MNE group should identify and remove from the pool those costs that are attributable to services performed by one group member solely on behalf of one other group member. In creating a pool of payroll costs, for example,...
  1. April 2013: Draft Handbook on Transfer Pricing Risk AssessmentThe 2013 Draft Handbook on Transfer Pricing Risk Assessment is a detailed, practical resource that countries can follow in developing their own risk assessment approaches. The handbook supplements useful materials already available with respect to transfer pricing risk assessment. The OECD Forum on...
  2. South African Revenue Service releases comprehensive Interpretation Note on intra-group loansThe South African Revenue Service (SARS) has published a comprehensive Interpretation Note on intra-group loans. The note provides taxpayers with guidance on the application of the arm’s length principle in the context of the pricing of intra-group loans. The pricing of intra-group loans...

Related Case Law

  1. Aruba vs PriceSmart Inc., September 2019, Council for Tax Affairs of Aruba, Case No 2010/45712PriceSmart Inc (PSMT) operates a retail chain including approximately 25 department stores in the Caribbean and Central America. PSMT’s local branch had recognised losses in their profit tax returns for the years 2001 to 2006. In 2009, the tax authorities audited the tax...
  2. 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...
  3. Austria vs A & W AG, October 2009, Verwaltungsgerichtshof, Case No 2006/13/0116A & W AG, a company based in Germany, had maintained a permanent establishment in Austria which provided “distribution and support of software” services. No profits had been attributed to the Austrian permanent establishment. An assessment was issued where profits for FY 1998...
  4. Israel vs Broadcom, December 2019, Lod District Court, Case No 26342-01-16Broadcom Semiconductors Ltd is an Israeli company established in 2001 under the name Dune Semiconductors Ltd. The Company is engaged in development, production, and sale of components to routers, switches etc. The shares in Dune Semiconductors were acquired by the Broadcom Corporation (a...