The 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 method (cost plus method or cost-based TNMM) for pricing intra-group services. A CUP method is likely to be the most appropriate method where there is a comparable service provided between independent enterprises in the recipient’s market, or by the associated enterprise providing the services to an independent enterprise in comparable circumstances. For example, this might be the case where accounting, auditing, legal, or computer services are being provided subject to the controlled and uncontrolled transactions being comparable. A cost based method would likely be the most appropriate method in the absence of a CUP where the nature of the activities involved, assets used, and risks assumed are comparable to those undertaken by independent enterprises. As indicated in Chapter II, Part II, in applying the cost plus method, there should be a consistency between the controlled and uncontrolled transactions in the categories of cost that are included. In exceptional cases, for example where it may be difficult to apply the CUP method or the cost-based methods, it may be helpful to take account of more than one method (see paragraph 2.12) in reaching a satisfactory determination of arm’s length pricing.
TPG2022 Chapter VII paragraph 7.31
Category: B. Main issues | Tag: Comparable uncontrolled price method (CUP), Cost plus method, Intra-group services, Most appropriate method (MAM), Service fee, Services
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- 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...
- TPG2022 Chapter VII paragraph 7.23A direct-charge method for charging for intra-group services can be difficult to apply in practice. Consequently, some MNE groups have developed other methods for charging for services provided by parent companies or group service centres. In such cases, MNE groups may find they...
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- TPG2022 Chapter VII paragraph 7.24In some cases, an indirect-charge method may be necessary due to the nature of the service being provided. One example is where the proportion of the value of the services rendered to the various relevant entities cannot be quantified except on an approximate...
- TPG2022 Chapter II paragraph 2.51For this purpose, it is particularly important to consider differences in the level and types of expenses – operating expenses and non- operating expenses including financing expenditures – associated with functions performed and risks assumed by the parties or transactions being compared. Consideration...
- TPG2022 Chapter VII paragraph 7.20To identify the amount, if any, that has actually been charged for services, a tax administration will need to identify what arrangements, if any, have actually been put in place between the associated enterprises to facilitate charges being made for the provision of...
- 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 II paragraph 2.47Following the principles in Chapter I, an uncontrolled transaction is comparable to a controlled transaction (i.e. it is a comparable uncontrolled transaction) for purposes of the cost plus method if one of two conditions is met: a) none of the differences (if any)...
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- 2018: ATO Taxpayer Alert on Mischaracterisation of activities or payments in connection with intangible assets (TA 2018/2)The ATO is currently reviewing international arrangements that mischaracterise intangible assets[1] and/or activities or conditions connected with intangible assets. The concerns include whether intangible assets have been appropriately recognised for Australian tax purposes and whether Australian royalty withholding tax obligations have been met. Arrangements...
Related Case Law
- Zimbabwe vs IAB Company, January 2022, High Court, Judgement No. HH 32-22 ITC 17/17IAB Company had deducted fees paid for services to its parent, IAL. Following an audit the tax authorities denied these deductions as sufficient evidence had not been provided for provision of the services. An appeal was filed by IAB Company. Judgement of the...
- Norway vs Petrolia Noco AS, March 2021, Court of Appeal, Case No LB-2020-5842In 2011, Petrolia SE established a wholly owned subsidiary in Norway – Petrolia Noco AS – to conduct oil exploration activities on the Norwegian shelf. From the outset, Petrolia Noco AS received a loan from the parent company Petrolia SE. The written loan...
- India vs Olympus Medical Systems India Pvt. Ltd., April 2022, Income Tax Appellate Tribunal – New Delhi, Case No 838/DEL/2021Olympus Medical Systems India is a subsidiary of Olympus Corp and engaged in the import, sale and maintenance of medical equipment in India. For FY 2012 and 2013 the company reported losses. An transfer pricing audit was initiated by the tax authorities and...
- India vs Sabic India Pvt Ltd, June 2021, Income Tax Appellate Tribunal – Delhi, ITA No.454/Del/2021Sabic India Pvt Ltd was primarily engaged in providing marketing support services to facilitate the selling of fertilizers and chemicals in India on behalf of the Sabic Group holding company. The Indian company did not hold any title to inventories and all products...