TPcases

Database of Transfer Pricing Case Laws

TPG2022 Chapter VII paragraph 7.52

Posted on January 20, 2022 | By OECD

Category: OECD Transfer Pricing Guidelines (2022), TPG2022 Chapter VII: Special Considerations for Intra-group Services | Tag: Group wide basis, Intra-group services, Low Value-Adding Services (LVAS), Service fee, Services, Simplified approach

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This 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 those members. The basic benefits of using the simplified approach include: (1) reducing the compliance effort of meeting the benefits test and in demonstrating arm’s length charges; (2) providing greater certainty for MNE groups that the price charged for the qualifying activities will be accepted by the tax administrations that have adopted the simplified approach when the conditions of the simplified approach mentioned in paragraph 7.45 have been met; and (3) providing tax administrations with targeted documentation enabling efficient review of compliance risks. An MNE group electing to adopt this simplified method would as far as practicable apply it on a consistent, group wide basis in all countries in which it operates.

Related Guidelines

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 7.55While low value-adding intra-group services may provide benefits to all recipients of those services, questions may arise about the extent of the benefits and whether independent parties would have been willing to pay for the service or perform it themselves. Where the MNE group has followed the guidance of the...

TPG2022 Chapter VII paragraph 7.54As discussed in paragraph 7.6, under the arm’s length principle an obligation to pay for an intra-group service arises only where the benefits test is satisfied, i.e. the activity must provide the group member expected to pay for the service with economic or commercial value to enhance or maintain its...

TPG2022 Chapter VII paragraph 7.44This section discusses the definitional issues related to low value-adding intra-group services for applying the elective, simplified approach discussed under Section D.2. It starts by indicating the characteristics that services must have in order to qualify as low-value-adding intra-group services for applying the elective, simplified approach. It then identifies a...

TPG2022 Chapter VII paragraph 7.43This section provides specific guidance relating to a particular category of intra-group services referred to as low value-adding intra-group services. Section D. 1 contains the definition of low value-adding intra-group services. Section D.2 sets out an elective, simplified approach for the determination of arm’s length charges for low value-adding intra-group...

TPG2022 Chapter VII paragraph 7.50The following examples illustrate an important element of the definition of low value-adding intra-group services, namely, that they should not include services which are part of the MNE’s core business. Services that may seem superficially similar in nature (in the example, credit risk analysis) may or may not be low...

TPG2022 Chapter VII paragraph 7.17These services may be available on call and they may vary in amount and importance from year to year. It is unlikely that an independent enterprise would incur stand-by charges where the potential need for the service was remote, where the advantage of having services on-call was negligible, or where...

TPG2022 Chapter VII paragraph 7.8Some intra-group services are performed by one member of an MNE group to meet an identified need of one or more specific members of the group. In such a case, it is relatively straightforward to determine whether a service has been provided. Ordinarily an independent enterprise in comparable circumstances would...

TPG2022 Chapter VII paragraph 7.7The analysis described above quite clearly depends on the actual facts and circumstances, and it is not possible in the abstract to set forth categorically the activities that do or do not constitute the rendering of intra-group services. However, some guidance may be given to elucidate how the analysis would...

TPG2022 Chapter VII paragraph 7.6Under the arm’s length principle, the question whether an intra-group service has been rendered when an activity is performed for one or more group members by another group member should depend on whether the activity provides a respective group member with economic or commercial value to enhance or maintain its...

Supplemental Guidance

Peru vs “Metal S.A.”, February 2023, Tax Court, Case No 01428-1-2023A Peruvian mining distributor faced tax authority adjustments challenging its arm's length remuneration for distribution activities and the pricing of intra-group low value-adding services, which local rules cap at a 5% margin. The Peru Tax Court in February 2023 overturned the adjustment on distribution remuneration in favour of the taxpayer...

Peru vs “Copper Corporation S.A.”, July 2011, Tax Court, Case No 12609-8-2011A Peruvian copper mining company deducted intra-group service payments from its taxable income, but the tax authority disallowed the deductions after finding the supporting documentation insufficient to prove the services were actually rendered. The company appealed to the Tax Court, which dismissed the appeal and upheld the assessment in favour...

Poland vs D. Sp. z oo, April 2022, Administrative Court, Case No I SA/Bd 128/22A Polish company deducted interest on intra-group loans and management fee expenses for FY 2015, with both arrangements involving a related Delaware entity. The tax authority denied the deductions, finding the loan structure artificial and the management fees insufficiently substantiated. The Polish Administrative Court upheld the authority's assessment in April...

Poland vs “H. LVAS Sp. z oo”, September 2022, Administrative Court, Case No I SA / Go 234/22A Polish subsidiary deducted expenses for management and support services provided by its German parent, classified as low value-adding services. The tax authority disallowed the deductions due to insufficient documentation linking specific services to the invoiced amounts. The Administrative Court found the assessment flawed and remanded the case for re-examination,...

Poland vs D. Sp. z oo, July 2024, Supreme Administrative Court, Case No II FSK 1228/22A Polish company deducted interest on intra-group loans and management fees paid to a related Delaware entity for FY 2015. The tax authority denied both deductions, arguing the loans were artificial tax-avoidance arrangements and the management fees lacked sufficient substance. Poland's Supreme Administrative Court ruled in favour of the taxpayer,...

Peru vs “Airline S.A.”, September 2024, Tax Court, Case No 08970-8-2024A Peruvian airline claimed deductions for intra-group aircraft leasing and related costs passed down from a group parent. The tax authority disallowed the deductions, finding insufficient documentation to prove the services were actually rendered to the taxpayer, including missing block hour records and per-entity billing. The Tax Court upheld the...

Peru vs “Airline S.A.”, March 2025, Tax Court, Case No 02374-4-2025A Peruvian airline claimed deductions for intra-group service payments, arguing they were necessary within the corporate group and subject to OECD transfer pricing principles. The tax authority disallowed the deductions due to insufficient documentation proving the services were actually rendered. Peru's Tax Court dismissed the appeal in March 2025, ruling...

Czech Republic vs BEAS SUN s.r.o., July 2024, Supreme Administrative Court, Case No 6 Afs 255/2023 – 65A Czech company challenged the tax authority's use of the cost plus method to price low value-adding intra-group services, arguing the CUP method should have been applied instead. The Regional Court and Supreme Administrative Court both confirmed that CUP holds no automatic superiority over other methods and is preferred only...