The initial step in applying the simplified approach to low value-adding intra-group services is for the MNE group to calculate, on an annual basis, a pool of all costs incurred by all members of the group in performing each category of low value-adding intra-group services. The costs to be pooled are the direct and indirect costs of rendering the service as well as, where relevant, the appropriate part of operating expenses (e.g. supervisory, general and administrative). The costs should be pooled according to category of services, and should identify the accounting cost centres used in creating the pool. Pass-through costs in the cost pool should be identified for the purposes of applying paragraph 7.61. The cost pool should exclude costs that are attributable to an in-house activity that benefits solely the company performing the activity (including shareholder activities performed by the shareholding company).
TPG2022 Chapter VII paragraph 7.56
Category: D. Low value-adding intra-group services | Tag: Application of the simplified approach, Intra-group services, Low value-adding services (LVAS), Pass-through costs, Pool of cost, Service fee, Services, Shareholder activity
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- 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...
- TPG2022 Chapter VII paragraph 7.61In determining the arm’s length charge for low value-adding intra-group services, the MNE provider of services shall apply a profit mark-up to all costs in the pool with the exception of any pass-through costs as determined under paragraphs 2.99 and 7.34. The same...
- TPG2022 Chapter VII paragraph 7.60The examples of allocation keys provided in the previous paragraph are not intended to be an exhaustive list. Depending on the facts and circumstances more sophisticated allocation keys might be used. However, a balance should be struck between theoretical sophistication and practical administration,...
- TPG2022 Chapter VII paragraph 7.59The third step in this simplified charge method for low value-adding intra-group service costs is to allocate among members of the group the costs in the cost pool that benefit multiple members of the group. The taxpayer will select one or more allocation...
- TPG2022 Chapter VII paragraph 7.58At this stage in the calculation, the MNE group has identified a pool of costs associated with categories of low value-adding services which are provided to multiple members of the MNE group....
- 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,...
Related Case Law
- 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...
- Peru vs “Copper Corporation S.A.”, July 2011, Tax Tribunal, Case No 12609-8-2011“Copper Corporation S.A.” had deducted intra-group service payments in it’s taxable income. The Peruvian tax authorities determined that the documentation provided by the company did not sufficiently support the actual provision of these services. Hence, tax deductions for the expenses was denied. The...
- Switzerland vs “Trust Administrator A. SA”, September 2019, Federal Supreme Court, Case No 2C_343/2019A Swiss company provided administration and other services to trusts. According to the company a related party in the Seychelles handled the daily business and received remuneration in accordance with an intra-group service agreement. Due to the service fees paid the Swiss company...
- Poland vs D. Sp. z oo, April 2022, Administrative Court, Case No I SA/Bd 128/22D. Sp. z oo had deducted interest expenses on intra-group loans and expenses related to intra-group services in its taxable income for FY 2015. The loans and services had been provided by a related party in Delaware, USA. Following a inspection, the tax...
- Spain vs Sierra Spain Shopping Centers Services S.L.U., January 2022, National Court, Case No SAN 151/2022 – ECLI:ES:AN:2022:151Sierra Spain Shopping Centers Services S.L.U. is part of a multinational group that manages shopping centres. Sierra Spain had deducted expenses for services rendered from a related party in Portugal. According to Sierra Spain, the services were related to strategic management and marketing....