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.
TPG2022 Chapter VII paragraph 7.36
Category: B. Main issues | Tag: Cost base, Cost plus method, Intra-group services, Service fee, Services
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- 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 7.30For 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 7.3Intra-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 7.9A 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 7.52This 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 7.13Similarly, 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...
- 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 7.14Other activities that may relate to the group as a whole are those centralised in the parent company or one or more group service centres (such as a regional headquarters company) and made available to the group (or multiple members thereof). The activities...
- Spain releases report on application of their General Anti-Abuse Rule.The Spanish tax authorities have published a report on the applicability of their domestic General Anti-Abuse Rule (GAAR). In the report, a conduit arrangement aimed at benefiting from an exemption at source on the payment of interest to EU residents is described. ...
- Additional guidance on the attribution of profits to permanent establishmentsThe OECD has released additional guidance on the attribution of profits to permanent establishments. This additional guidance sets out high-level general principles for the attribution of profits to permanent establishments arising under Article 5(5), in accordance with applicable treaty provisions, and includes examples...
Related Case Law
- France vs GE Healthcare Clinical Systems, June 2018, CE n° 409645In this case, the French tax authorities questioned the method implemented by GE Healthcare Clinical Systems to determine the purchase price of the equipment it was purchasing from other General Electric subsidiaries in the United States, Germany and Finland for distribution in France....
- Poland vs “H. LVAS Sp. z oo”, September 2022, Administrative Court, Case No I SA / Go 234/22“H. LVAS Sp. z oo” had deducted expenses related to intra-group services in its taxable income. The services had been provided by its German parent company, H. GmbH. The services (supervision and management support, coordination of projects, support in accounting, controlling, IT and...
- Italy vs Rohm and Haas Italia s.r.l, February 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...
- Finland vs Corp, September 2017, HFD:2017:145Ruling by the Finnish Supreme Administrative Court on enterprise resource planning and intra-group services arrangements. A Oyj had provided its subsidiaries with supply chain services, marketing and brand management services as well as personnel and computer services. The services offered by A Plc...