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Database of Transfer Pricing Case Laws

TPG2022 Chapter VII paragraph 7.61

Posted on January 20, 2022 | By OECD

Category: OECD Transfer Pricing Guidelines (2022), TPG2022 Chapter VII: Special Considerations for Intra-group Services | Tag: Application of the simplified approach, Intra-group services, Low Value-Adding Services (LVAS), Pool of cost, Service fee, Services

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In 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 value-adding services irrespective of the categories of services. The mark-up shall be equal to 5% of the relevant cost as determined in Section D.2.2. The mark-up under the simplified approach does not need to be justified by a benchmarking study. The same mark-up may be applied to low value-adding intra-group services performed by one group member solely on behalf of one other group member, the costs of which are separately identified under the guidance in paragraph 7.57. It should be noted that the low value-adding intra-group services mark-up should not, without further justification and analysis, be used as benchmark for the determination of the arm’s length price for services not within the definition of low value-adding intra-group services, nor for similar services not within the elective, simplified scheme.

Related Guidelines

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 7.60The 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...

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, if group company A provides payroll services...

TPG2022 Chapter VII paragraph 7.56The 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...

TPG2022 Chapter VII paragraph 7.53Where a tax administration has not adopted the simplified approach, and as a consequence the MNE group complies with the local requirements in that jurisdiction, such compliance would not disqualify the MNE group from the application of the simplified approach to other jurisdictions. In addition, not all MNE groups are...

TPG2022 Chapter VII paragraph 7.45Low value-adding intra-group services for the purposes of the simplified approach are services performed by one member or more than one member of an MNE group on behalf of one or more other group members which are of a supportive nature, are not part of the core business of the...

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...

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...

Switzerland vs “Trust Administrator A. SA”, September 2019, Federal Supreme Court, Case No 2C_343/2019A Swiss trust administration company paid service fees to a related Seychelles entity under an intra-group agreement, resulting in continuous losses. The Swiss tax authority rejected the fees as excessive and applied a cost-plus 5% method. The Federal Supreme Court upheld the assessment in 2019, confirming the Seychelles entity performed...

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...