Draft guidance released November 3 would modify the OECD transfer pricing guidelines to provide elective, simplified, transfer pricing rules for low value-adding intra-group services.
The guidance was released in response to Action 10 of the OECD Base Erosion and Profit Shifting (BEPS) plan, which directs the OECD to develop transfer pricing rules or special measures “to provide protection against common types of base eroding payments, such as management fees and head office expenses.”
New rules on low-value-adding intra-group services would permit taxpayers to combine such services into pools if the services are provided to multiple members of the MNE group. Taxpayers then use an allocation key to allocate the costs among members of the group. A mark-up between 2% and 5% is considered arm’s length under the guidance.
The guidance requires specific reporting and documentation showing the determination of the specific cost pool and includes a simplified benefits test — tax administrations should consider benefits only by categories of services, not on a specific charge basis.
The OECD also provided guidance on how to determine if an intra-group service has been rendered and can thus be charged to the recipient companies. It also defined shareholder activities and duplicative costs, which would not justify such a charge.
Also included are detailed rules on how to compute an arm’s length intra-group charge for services.
Comments on the draft are due January 14; a public consultation will be held on March 19–20, 2015.
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