The OECD offers a simpler way to set service fees for low value-adding intragroup services between related parties, reducing the compliance burden for both multinational groups and tax authorities.

Which services qualify?

The OECD Guidelines list activities that may qualify for the OECD simplified approach, such as accounting, audit, HR, IT, and general administrative services. Services are considered low value-adding if they are supportive in nature, are not core to the business, do not contribute significantly to economic activity, do not involve unique intangibles, and do not create or control significant risk.

For qualifying services, a 2%–5% mark-up is deemed to be arm’s length and requires no benchmarking. However, some intra-group services – such as legal, remuneration, and accounting – may appear low value-adding on the surface but are excluded from the simplified approach where they are core to the business or involve substantial risk or value creation.

How the simplified approach works

The simplified approach is designed to benefit low value-adding services that support business operations, streamlining compliance processes for both multinational groups and tax authorities. It establishes clear pricing parameters for qualifying activities and offers tax administrators a more effective means of assessing compliance documentation.

When the simplified approach is adopted, it should be applied consistently across the entire group wherever feasible and practical.

The group is required to maintain comprehensive documentation, including:

• A description of each category of low value-adding intra-group services and justification for their inclusion under the defined criteria

• The anticipated benefits to be received by the service recipients

• The allocation keys utilised for each service category, along with supporting rationale for their appropriateness

• Relevant contractual agreements between parties

• Detailed calculations of charges made to or by relevant group members, as specified in the process outlined below

Generally, OECD member states are expected to accept this simplified approach when analysing low value-adding services. It is important to note, however, that local legislation will take precedence where applicable.

Groups frequently engage in multiple cross-border transactions, some of which may qualify as low value-adding services. When developing transfer pricing policies, we can assess whether the simplified method is applicable to your intra-group transactions, which may reduce the level of recharges and documentation required. If you’d like to speak to our team, please fill out the form below.