OECD TP Guidelines: Evolving guidance on intra-group services

The OECD has recently released a draft update to Chapter VII of the OECD Transfer Pricing Guidelines, proposing a range of revisions and clarifications in relation to intra-group services. Stakeholders are invited to provide comments on all aspects of the discussion draft, including the extent to which the objectives of the work, such as updating and modernising the existing provisions, have been met.

Overall, many of the proposed changes are welcome. Given Chapter VII was last amended in 1997 (excluding the recent inclusion of the low-value adding services sub-section), the draft reflects recent developments in transfer pricing and provides more up-to-date and practical examples, which are relevant to modern business models. This includes the increasing use of data analytics and the growing role of digital marketing channels, such as influencers as well as the effect of centralisation of business functions.

This article summarises the key proposed changes and considers their potential implications for taxpayers, including how they may affect existing transfer pricing policies, documentation requirements, and the design of intra-group service arrangements.

General changes

The consultation document proposes a number of systematic changes to the treatment of intra-group services, including the introduction of a more structured categorisation of intercompany transactions. In particular, it distinguishes between two main categories:

• Core business activities of MNE groups, such as research and development, marketing, or production; and,
• Supportive or enabling activities made available to some or all group members to facilitate efficient operations, such as administrative or financial services.

This distinction reflects a more nuanced and commercially aligned framework for analysing intra-group services. The consultation appears to adopt a more business-driven perspective. It explicitly acknowledges that “MNE groups are free to organise their operations as they see fit with the goals of maximising their profitability and enhancing their competitiveness in the market.” Consistent with this principle, the proposal emphasises that tax administrations should not dictate how MNEs source or organise their intra-group services. Instead, their role is to assess and determine the tax consequences of the transactions as structured – this is a helpful message in the context of tax audits for intra-group services which have been prevalent in many jurisdictions in recent years.

From an administrative and compliance perspective, the document also emphasises the point that the primary obligation lies with MNEs to provide adequate information regarding their intercompany transactions. At the same time, it stresses that any additional information to respond to tax authorities’ requests should be proportionate, taking into account both: (i) the materiality of the transactions; and (ii) the associated compliance burden. This reflects a broader effort to balance transparency with practicality.

The consultation emphasises the importance of accurate delineation as the starting point of any transfer pricing analysis. Another example of this recently is the OECD’s introduction of a dedicated chapter on financial transactions in 2020.

Specifically, it highlights that: (i) the first step is to identify the commercial and financial relationships between associated enterprises; and (ii) the label or description assigned to an intra-group service is not determinative for transfer pricing purposes. Instead, the focus should remain on the substance of the arrangement, supported by a robust functional analysis.

A particularly welcome development is reflected in the proposed revision to Section 7.9, which acknowledges the importance of interdependencies within MNE groups, in particular:

• the interrelationship between activities performed by the service provider and the service recipient;
• how these activities interact with other controlled transactions within the group; and
• the broader contribution of other group entities including whether the MNE group operates under a centralised or decentralised model.

Following the conclusion of the OECD’s Base Erosion and Profit Shifting (BEPS) project in 2015 the importance of understanding the full ‘value chain’ has been emphasised by the OECD Guidelines and the practices of tax administrations. This further reinforces the expectation and need to consider the context of the intra-group services when analysing their nature and pricing.

Benefit test

One of the key areas of focus in the draft update is the “benefit test” which is used to accurately delineate the transaction and determine whether a service has in fact been provided by one group entity to another.

The consultation document provides further guidance on the application of the benefit test, setting out a number of key considerations for determining whether a benefit has been provided supported by examples.

In particular, it clarifies that:

• A benefit refers to any economic or commercial value derived from an activity performed by another member of the group for one or more associated enterprises. There are helpful examples of economic and commercial value e.g. increase in profitability, revenues etc. ;
• The benefit may be obtained either during or after the period in which the activity takes place;
• The benefit should be identified and reasonably expected at the time of the transaction; and,
• The expected benefit must be both factually possible and reasonably anticipated from the outset, although that doesn’t mean that it is guaranteed when the activity is performed. If the activities do not deliver a benefit as expected, this does not provide grounds to conclude that no intra-group service has been rendered. This is a critical and important inclusion in the draft, directly addressing one of the areas challenged by tax authorities in recent years.

Where an activity is performed for the benefit of multiple entities within a group, the benefit test should be applied individually at the level of each entity. The consultation includes a helpful example drawn from modern, data-driven business models to illustrate the application of the benefit test in practice. In this example, a multinational group in the skincare industry centralises its market research activities in Company A, which conducts consumer analysis, advertising testing, and influencer assessments for multiple markets. These services support both distribution and manufacturing entities in Countries B and C; however, only the distribution entities use the insights to refine their marketing strategies and target customers more effectively. As a result, the benefit test must be applied separately at the entity level, leading to the conclusion that only the distribution entities receive a chargeable benefit, while manufacturing entities should not be charged.

As section 7.19 of the consultation document states “The benefit test and the determination of the arm’s length remuneration for the intra-group services are separate analyses and should not be conflated, as the benefit test is not concerned with the amount that group members would be willing to pay”. In practice, this means that even if a service provides a benefit to a group entity (and therefore passes the benefit test), the arm’s length analysis separately determines what an independent party would actually agree to pay for that service regardless of the benefit received.

The consultation further notes that taxpayers should be prepared to provide reliable and contemporaneous documentation demonstrating that the benefit test has been satisfied, even where the anticipated benefits are not ultimately realised as expected e.g. communications between provider and service recipient through meeting minutes, emails, internal approval documents, deliverables and / or output of activities etc.

Shareholder activities

The consultation document provides a clearer definition of shareholder activities, stating that these are activities performed by an MNE in its capacity as a shareholder, solely by virtue of its ownership interest in one or more associated enterprises. As a result, they do not satisfy the benefit test and, therefore, do not qualify as intra-group services. Accordingly, no charge should be levied to other group members in respect of these activities.

The consultation provides the following helpful examples of the differing forms and constructs of shareholder activities and how each case needs to be analysed individually:

• No automatic classification as shareholder activity (para 7.27):
  Activities performed by parent company personnel, including senior management, are not, by default, shareholder activities. The assessment depends on a functional and factual analysis of the activity and whether it confers a benefit on group entities. Similarly, practical difficulties in pricing the service or the seniority of the personnel does not mean that it is a shareholder activity or there should be no charge.

• Application of the benefit test (para 7.30):
  Activities carried out by a shareholder may constitute intra-group services where they provide economic or commercial value to other group entities. If independent enterprises in comparable circumstances would have been willing to pay for such activities or perform them themselves, the benefit test is satisfied, and the services should be chargeable.

• Dual benefit does not prevent charging:
  The fact that the shareholder also derives value from the activity does not preclude it from being treated as a service. Where the activity benefits group members (e.g. group-wide initiatives such as training programmes), it remains capable of constituting a chargeable intra-group service.

The consultation further clarifies that the costs associated with shareholder activities should be borne at the level of the relevant shareholder. Depending on the specific facts and circumstances, this may be: (i) the ultimate parent entity; or (ii) another entity within the group acting in a shareholder capacity, such as an intermediate or regional holding company.

This clarification reinforces the distinction between shareholder activities and chargeable intra-group services, and highlights the importance of accurately identifying the capacity in which activities are performed within the group structure.

The consultation document also provides further clarity in respect of the following areas:

• Duplicative activities, where a group entity performs a service that merely replicates work already undertaken by another entity for itself, will generally not justify a charge, as an independent enterprise would not be willing to pay for unnecessary duplication.

• Incidental benefits, which arise indirectly from activities undertaken for the primary benefit of another group entity, do not constitute intra-group services where those benefits are too remote or peripheral for an independent party to pay for them.

• The introduction of guidance on “on-call” arrangements, which may constitute a service in their own right where the availability of support (e.g. legal, IT, or technical functions) provides a measurable economic value, and independent parties would be willing to pay a retainer or standby fee to secure such access.

• Services provided in connection with other transactions must be carefully delineated to determine whether they represent a distinct chargeable service or are merely ancillary to the primary transaction; this requires an assessment of whether an independent enterprise would separately remunerate such services under comparable circumstances.

Cost allocation method

While the consultation sets out the charging mechanisms in a more structured way, the underlying principles largely reflect existing OECD guidance. The key development is therefore one of presentation and clarity, rather than the introduction of new concepts.

At a high level:

Direct charge approach:
Appropriate where services are provided to a specific group entity and can be reliably identified and priced. This approach is generally preferred as it enhances transparency and clearly links the charge to the service provided.

Indirect charge approach:
Applied where services are provided on a centralised basis and cannot be directly attributed to individual entities (for example, shared service centres providing IT, HR or finance support across multiple jurisdictions).

In such cases, any indirect charge should:

• reflect an identifiable and reasonably expected benefit;
• be consistent with the commercial realities of the arrangement;
• include appropriate safeguards against manipulation;
• follow sound accounting principles; and
• result in cost allocations proportionate to the benefits received by each recipient.

Allocation of costs:
The selection of an allocation key should be based on an appropriate measure of usage or expected benefit. The consultation reiterates that this is inherently a matter of judgement, and that consistent application over time is critical.

In practice, identifying and supporting an appropriate allocation key remains one of the key challenges for MNE groups. The selection of allocation keys is highly dependent on the business model, and further guidance in this area would be beneficial. For example:

• Asset management: allocation based on management and/or performance fee revenues or assets under management (AUM) may be appropriate as a proxy for value derived;
• Banking: allocation based on capital deployed or asset base may better reflect the scale of activities supported;
• Other sectors: metrics such as EBIT or EBITDA may provide a reasonable proxy for benefit in certain cases.

Although the consultation reiterates that allocation keys should reflect usage or expected benefit, the absence of detailed, sector-specific examples means that significant judgement is still required in practice. The draft welcomes input on whether further guidance on the application of allocation keys for certain intra-group services would be useful as well as which allocation keys are applied by taxpayers in their experience. There is a fine balance between helpful guidance which could enhance consistency and certainty for taxpayers and the need for businesses to have a tailored approach to intra-group services in the context of the industry (e.g. financial services, for example) which would inform the appropriateness of allocation keys to be used.

Selection of the Most Appropriate Transfer Pricing Method

This section of the consultation proposes several important changes, with a clear shift towards emphasising the economically relevant characteristics of intra-group services, rather than relying on the labels assigned to them.

Historically, the chapter predominantly focussed on the application of the cost plus or transactional net margin method (using a cost based profit level indicator) whilst intra-group services largely consisted of administrative or support services within businesses nearly 30 years ago. However, business models have evolved and the nature and complexity of intra-group services have changed significantly in that time. This warrants a re-think by the OECD on the appropriate transfer pricing methods to be applied to price intra-group transactions.

Whilst the draft update seeks to align with the message in Chapter II of the OECD Guidelines to consider all transfer pricing methods equally, there are two areas which are now highlighted in particular:

While the Comparable Uncontrolled Price (CUP) method remains the most appropriate method where reliable comparable services between independent parties exist, it also has the strictest comparability requirements. Even relatively small differences in services, such as in their nature, volume, or type, can materially affect pricing, making it challenging to apply the CUP method in practice.

Intra-group services exist along a spectrum, from low value adding, routine support services to more complex and highly integrated services that may involve intangibles or significant risk-taking. In such cases, more sophisticated pricing approaches, such as the transactional profit split method, may be appropriate, particularly where both parties make unique and valuable contributions or share economically significant risks. The consultation document outlines an example and states that the profit split method may be relevant where services are provided alongside other transactions, including those involving intangibles, tangible goods, or software. However, it doesn’t address the following:

• Include an example of loss splits, a more challenging outcome for taxpayers to defend the application of the method to tax authorities.

• Whilst example 16 covers a situation where one group entity develops a machine learning model that is then used to provide services to other group entities, it does not go so far as to identify which transfer pricing method is applicable. It simply states that neither the cost plus nor the transactional net margin method should apply. Separately, it does not address the fundamental question many taxpayers are dealing with today regarding whether AI is an asset or a service and how this should be considered in the context of intra-group services.

We have seen a notable increase in tax authorities pursuing the application of the profit split method especially where, for example, there are three parties to the arrangement; one providing services, one managing economically significant risks and a third owning significant intangibles or assets coming together to undertake business activities of an integrated nature. The inclusion of the reference to this method in the draft update seeks to address this trend. Whilst the complexity of business models and the arrangement should determine the selection of the most appropriate transfer pricing method, taxpayers also have to deal with the practicality of implementing a transfer pricing policy where profit split is often far more challenging due to data availability, manipulation and the degree of subjectivity in the design of the allocation.

The consultation document emphasises that whether costs should be recharged with or without a mark-up must be assessed on a case-by-case basis, based on comparable arm’s length behaviour. In general, costs may be treated as pass-through (unmarked) costs where the service provider is merely acting as a paying agent and does not add value, whereas a mark-up is appropriate where the provider performs value-adding activities. A detailed analysis of the financial statements of the comparable companies identified in benchmarking studies becomes increasingly important to support that the transfer pricing policy is applied on an arm’s length basis.

The draft update also clarifies that where an entity acts as an agent or intermediary, any return should be applied only to the costs of performing the agency function itself, rather than to the underlying third-party costs incurred on behalf of group members.

Consideration of a Profit Element

The consultation introduces an additional example illustrating the consideration of a profit element in certain circumstances. Specifically, it recognises that in some cases, services may be provided internally by a group entity in order to maintain control and consistency over key business functions, such as selling and marketing operations, even where outsourcing to third parties might be more cost-effective.

In such situations, the determination of arm’s length remuneration should take into account not only the cost of providing the service, but also the additional benefits derived from maintaining control and consistency. These factors may justify the inclusion of a higher service charge, reflecting the strategic value of the arrangement.

Low-value adding services

The low-value adding services guidance has largely remained unchanged. However, a helpful example has been included which explains that a mark-up of 5% on costs outlined by the guidance is not a floor for the mark-up to be charged for low-value adding services as it could be lower than this in practice.

Documentation and Compliance Requirements

The consultation provides further guidance to taxpayers on the type of supporting information that should be maintained, which can also serve as a useful framework for internal documentation practices. In particular, taxpayers are expected to retain contemporaneous evidence supporting:

• the benefit received from the service;
• the rationale for any allocation methodologies applied; and
• the calculation of any mark-ups.

The consultation introduces more explicit references to the types of evidence expected to support intra-group service arrangements, including:

• communications between service providers and recipients (e.g. emails, meeting minutes, approvals);
• documentation of service scope and delivery (e.g. deliverables, outputs, activity breakdowns); and
• supporting materials evidencing the performance of services and the benefits derived.

While many tax authorities have already required this level of detail in practice, the inclusion of these elements in the OECD Guidelines represents a notable development at an OECD level, as such expectations were not previously articulated with this degree of specificity.

The consultation also places greater emphasis on documenting the procedures and criteria used to identify cost bases and allocation keys, further reinforcing the need for a robust and well supported transfer pricing framework.

These developments reflect an increasing alignment between the OECD Guidelines and existing tax authority expectations, particularly in jurisdictions such as the UK. For example, HMRC’s Guidelines for Compliance already emphasise the importance of demonstrating:

• the nature and extent of services provided;
• the benefit received by group entities; and
• the rationale for allocation methodologies, including the selection and application of allocation keys.

In this respect, the consultation can be seen as codifying existing practice, rather than introducing entirely new requirements. This is particularly significant given that many jurisdictions incorporate or closely follow the OECD Guidelines in their domestic transfer pricing legislation. As a result, these enhanced documentation expectations are likely to increase consistency across jurisdictions, while also raising the baseline level of evidence expected by tax authorities globally.

From a practical perspective, this reinforces the need for MNE groups to ensure that their documentation is not only technically robust, but also operationally aligned with how services are actually performed and managed within the business.

Conclusion

The OECD’s draft update to Chapter VII of the Transfer Pricing Guidelines introduces important revisions to the treatment of intra-group services, reflecting evolving business models and recent transfer pricing developments. The proposals adopt a more business-oriented approach, recognising the role of centralisation, data analytics, and digital marketing in modern MNE operations with a catalogue of useful examples (although those involving AI and taxpayers in the financial services and asset management industry are more limited). A stronger emphasis is placed on accurate delineation, with a focus on the economically relevant characteristics of transactions rather than their labels. The guidance also highlights the importance of functional analysis, interdependencies within MNE groups, and organisational structure.

For taxpayers, the key issues now are less about the existence of a framework and more about its application in practice. In particular:

• Entity-level benefit testing will require more granular analysis, evidence and governance. MNEs will need robust processes to demonstrate that each charged entity obtains a clear benefit (and to support non charging where the benefit test is not met) to address tax authority challenges.

• Distinguishing shareholder and non-chargeable activities from chargeable services will become more critical, as will correctly identifying duplicative or merely incidental activities..

• Selection and support of allocation keys will be central: MNEs must be able to explain why particular keys are selected, show that they reflect the underlying drivers of cost and benefit, and substantiate them with reliable data and a consistent application over time.

• Method selection – including when to use cost plus, when a profit split may be warranted, and how to treat pass through versus marked up costs – may become more contentious. There will continue to be a challenging balance between certain methods driven by tax authorities’ views of the facts and the practical application of the method by taxpayers.

• Documentation has increased, particularly evidence to demonstrate the application of the benefit test and allocation keys with an expectation to retain evidence pre, during and post the provision of a service.

Consistency and certainty are critical for businesses in the current environment and although the draft update incorporates notable developments from tax authority and taxpayer practices in recent years, there are still areas which require further exploration and guidance which aren’t covered in detail in the draft update e.g. AI and the use and application of the profit split method for intra-group services.

Affected businesses have until 22 July 2026 to submit comments on the consultation draft, which should be sent via email to taxpublicconsultation@oecd.org. Please reach out to your Simmons & Simmons contact to discuss your comments should you wish to respond to the consultation.