Transfer Pricing: Special Rules for intra-group Services

Nearly all multinational enterprises (MNEs) will have some kind of intra-group services such as technical services, management services, human resources support, finance and accounts, IT etc. The fee for the rendering of such intra-group services needs to be in line with the transfer pricing rules and must meet the arm’s length standard.

Transfer pricing involves setting prices for transactions between associated enterprises operating in different tax jurisdictions. MNEs need to ensure that transactions between these entities should be priced as if they were conducted between unrelated parties in an open market. Transfer pricing advisers in Dubai can help you accurately determine the transfer prices of intra-group services.

In this blog, we will explore the special rules and considerations for managing intra-group services within the framework of transfer pricing. Read ahead for more insights:

What are intra-group services?

MNE groups often arrange for various services to be available to their members, especially administrative, technical, financial and commercial services. These services may include management, coordination and control functions for the whole group. The fee for such intra-group services may be borne initially by the parent entity, by one or more specially designated group members (“a group service centre”), or by other group members.

An independent enterprise may avail of such services from a service provider who specialises in that type of service or may perform the service for itself (i.e. in-house). Similarly, a member of an MNE group may also acquire it from independent enterprises, or from one or more associated enterprises in the same MNE group (i.e. intra-group), or may perform the service for itself.

Intra-group services may include services that are typically available externally from independent enterprises (such as legal and accounting services), in addition to those that are ordinarily performed internally (e.g. by an enterprise for itself, such as central auditing, financing advice, or training of personnel).

Main Transfer Pricing Consideration for Intra-group Services

Transfer pricing of intra-group services involves two issues: Determining whether intra-group services have been rendered and Determining an arm’s length range. Transfer Pricing consultants in Dubai can help you navigate these two issues.

Determining whether intra-group services have been rendered

Before establishing that the cost of services is charged appropriately, the entities need to prove whether the intra-group service has been rendered or not. The OECD Guideline details certain considerations for determining whether an intra-group service has been rendered. These considerations include,

Benefits Test

Consider whether an independent enterprise in a similar circumstance would have been willing to pay for the service if performed for it by an independent enterprise or would have performed the activity in-house for itself. If the answer is no, then the service won’t be considered an intra-group service.

Shareholder Activities

Services performed by a parent company or a regional holding company solely due to its ownership interest in one or more group members would not be considered to be an intragroup service. Such activities are called shareholder activities and the group members do not require the service.


These are activities performed by a third party for a group member or activities conducted by one group member that merely duplicates a service that another group member is performing for itself. These are not intra-group services.

Incidental Benefits

These are services performed for a specific group member but incidentally, benefit other group members. These services will not help other group members to be treated as receiving an intragroup service.

Centralised Services

These activities are centralised in the parent company or one or more group service centres and rendered to the group or multiple members of the MNE group. Centralised services may include planning, coordination, budgetary control, financial advice, accounting, auditing, legal, supervision of cash flows and solvency, capital increases etc. Such activities are often considered intra-group services as they are the type of activities that independent enterprises would have been willing to pay for or to perform for themselves.

Determining an arm’s length range

Once you determine whether an intra-group service has been delivered, you need to determine whether the service fee charged meets the arm’s length standard. Two methods are available to determine whether the intra-group services are charged at arm’s length:

Direct Charge Method

In this method, the associated enterprises charged each other directly for specific services. If you use this method, it will be clear for tax authorities what services have been rendered and how it was paid for.

Indirect Charge Method

MNE groups cannot always use the direct charge method. In some cases, the cost of services cannot be directly apportioned to associated enterprises. Examples include sales promotion activities and administrative services. In such cases, MNEs may use cost allocation and apportion methods such as the Comparable Uncontrolled Price (CUP) method or the Cost-Plus Method. Transfer pricing consultants in Dubai can advise you on which method to use.

Low value-adding intra-group services

The OECD also recommends a rather simplified approach to determine the arm’s length prices when the services provided are low-value-adding Intra-group services (LVAS). A service can be treated as LVAS when it meets the following conditions:

  • The service must be supportive in nature,
  • It should not be part of the core business of the group,
  • It should not use or create unique and valuable intangibles, and
  • It should not involve the assumption, control or creation of significant risk

Avail of the Best Transfer Pricing Services in Dubai

When intra-group services are involved, determining the arm’s length prices can be complex for MNEs. Tax Gian, a brand of Jitendra Tax Consultants (JTC), provides bespoke transfer pricing services in Dubai so that transfer pricing compliance becomes easier for MNEs. We have a team of highly qualified tax experts who can assist in analysing Intragroup services, determining arm’s length prices for Intra-group services, and analysing Low value-adding services.

Tax Gian is one of the top transfer pricing advisers in Dubai with years of experience. Since 2001, Jitendra Chartered Accountants, an associate of JTC, has been providing end-to-end advisory services including tax solutions in Dubai, UAE to its clients globally. Call us today for any matter related to transfer pricing compliance in the UAE.

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