In considering whether a charge for the provision of services would be made between independent enterprises, it would also be relevant to consider the form that an arm’s length consideration would take had the transaction occurred between independent enterprises dealing at arm’s length. For example, in respect of financial services such as loans, foreign exchange and hedging, all of the remuneration may be built into the spread and it would not be appropriate to expect a further service fee to be charged if such were the case. Similarly, in some buying or procurement services a commission element may be incorporated in the price of the product or services procured, and a separate service fee may not be appropriate.
TPG2022 Chapter VII paragraph 7.15
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By OECD
Category: OECD Transfer Pricing Guidelines (2022), TPG2022 Chapter VII: Special Considerations for Intra-group Services | Tag: Financial service fee, Hedging, Intra-group loan, Intra-group services, Loan, Procurement, Service fee, Services
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- TPG2022 Chapter VII paragraph 7.39One example involves debt-factoring activities, where an MNE group decides to centralise the activities for economic reasons. For example, it may be prudent to centralise the debt-factoring activities to better manage liquidity, currency and debt risks and to provide administrative efficiencies. A debt-factoring centre that takes on this responsibility is...
- 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 that are centralised depend on the kind...
- 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 where an associated enterprise by reason of...
- TPG2022 Chapter VII paragraph 7.65The levying of withholding taxes on the provision of low value-adding intra-group services can prevent the service provider recovering the totality of the costs incurred for rendering the services. When a profit element or mark-up is included in the charge of the services, tax administrations levying withholding tax are encouraged...
- TPG2022 Chapter VII paragraph 7.64An MNE group electing for application of this simplified methodology shall prepare the following information and documentation and make it available upon request to the tax administration of any entity within the group either making or receiving a payment for low value-adding intra-group services. A description of the categories of...
- TPG2022 Chapter VII paragraph 7.63Tax administrations adopting the simplified approach to low¬value-adding intra-group services set out in this section may include an appropriate threshold to enable them to review the simplified approach in cases where the threshold is exceeded. Such a threshold might, for example, be based on fixed financial ratios of the recipient...
- 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 as detailed in paragraph 7.57, plus the...
- 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 mark-up shall be utilised for all low...
- 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, bearing in mind that the costs involved...
- 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 keys to apply for this purpose based...
Supplemental Guidance
- September 2017: Transfer Pricing Risk Assessment in the Mining IndustryThe African Tax Administration Forum (ATAF) and the German Federal Ministry for Economic Cooperation and Development (BMZ), through the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, have developed this toolkit for African tax authorities seeking to assess transfer pricing risk in the mining industry. The purpose is to strengthen authorities’...
- New TPG Chapter X on Financial Transactions (and additions to TPG Chapter I) released by OECDToday, the OECD has released the report Transfer Pricing Guidance on Financial Transactions. The guidance in the report describes the transfer pricing aspects of financial transactions and includes a number of examples to illustrate the principles discussed in the report. Section B provides guidance on the application of the principles...