TPG2017 Chapter VII paragraph 7.36

Category: B. Main issues, OECD Transfer Pricing Guidelines (2017), TPG2017 Chapter VII: Special Considerations for Intra-Group Services | Tag: , , , ,
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For 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 provider but is offered incidentally as a convenience to the MNE group. In determining whether the intra-group services represent the same value for money as could be obtained from an independent enterprise, a comparison of functions and expected benefits would be relevant to assessing comparability of the transactions. An MNE group may still determine to provide the service intra-group rather than using a third party for a variety of reasons, perhaps because of other intra-group benefits (for which arm’s length compensation may be appropriate). It would not be appropriate in such a case to increase the price for the service above what would be established by the CUP method just to make sure the associated enterprise makes a profit. Such a result would be contrary to the arm’s length principle. However, it is important to ensure that all benefits to the recipient are properly taken into account.






Related Guidelines

  1. 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...
  2. 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,...
  3. 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...
  4. TPG2022 Chapter VII paragraph 7.33Where a cost based method is determined to be the most appropriate method to the circumstances of the case, the analysis would require examining whether the costs incurred by the group service provider need some adjustment to make the comparison of the controlled...
  5. 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...
  6. TPG2022 Chapter VII paragraph 7.26When an indirect-charge method is used, the relationship between the charge and the services provided may be obscured and it may become difficult to evaluate the benefit provided. Indeed, it may mean that the enterprise being charged for a service itself has not...


Related Case Law

  1. Czech Republic vs BEAS SUN s.r.o., July 2024, Supreme Administrative Court, Case No 6 Afs 255/2023 – 65The tax authorities chose the cost plus method for determining the arm’s length price for low value-added intra-group services provided between related parties (Cost+). It took the parent company’s wage costs as the basis, to which it added a mark-up of 7 %,...
  2. India vs Mercer Consulting India Pvt Ltd., March 2024, High Court of New Delhi, ITA 217/2017The tax authorities had disallowed deductions for administrative services paid by Mercer Consulting to a related party. However, Mercer Consulting was remunerated on a cost plus basis for providing intra-group IT-services and payments for the administrative services were included in the cost basis...
  3. Switzerland vs “Kraftwerke A. AG”, June 2024 , Federal Supreme Court, Case No 9C_37/2023In the case of Kraftwerke A AG, the issue was whether taxes should be included in the cost base when applying the cost-plus method to determine whether Kraftwerke A AG had invoiced its services to the shareholders/partners in accordance with the arm’s length...
  4. Tanzania vs Aggreko International Projects Ltd, September 2023, Court of Appeal, Case No. 456 of 2021Aggreko International Projects Ltd operates in Tanzania as a subsidiary of Aggreko International Projects Limited, a UK company, and is engaged in the provision of emergency/temporary power generation services, primarily to Tanzania National Electricity Supply Company Limited (TANESCO). In FY2011 to FY2012, head...
  5. Peru vs “Metal S.A.”, February 2023, Tax Court, Case No 01428-1-2023Following an audit, the tax authorities found that “Metal S.A.” had not been remunerated at arm’s length for its distribution activities. In addition, the intra-group services received by “Metal S.A.” were considered to be low value-added services for which the margin could not...