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Key proposed changes

Greater focus on accurate delineation

The consultation document places increased emphasis on accurate delineation of the transaction as the starting point of the transfer pricing analysis. In particular, the OECD clarifies that the existence of a service agreement or an intercompany charge does not, by itself, demonstrate that a chargeable service has been provided. Instead, the focus should be on whether activities performed by one group entity provide economic or commercial value to another group entity.

Expanded guidance on the benefit test

The OECD substantially expands its guidance on the benefit test. The document states that benefits should be assessed based on the facts and circumstances existing when the activities are performed and acknowledges that expected benefits may arise over time or ultimately fail to materialise without affecting the characterisation of the service. This assessment should be performed separately for each service recipient. The OECD also clarifies that the benefit test should be analysed separately from the determination of the arm’s-length price for the service.

The document also provides additional guidance on shareholder activities and other situations where the benefit test may be difficult to apply. A key topic is the distinction between shareholder activities and chargeable intra-group services.

Allocation keys, profit split and documentation

The consultation document provides additional guidance on allocation keys, transfer pricing methodologies and documentation. The OECD emphasises that allocation keys should reasonably reflect the expected benefits received by service recipients and recognises that the profit split method may be appropriate in certain highly integrated service arrangements involving unique and valuable contributions or economically significant risks. At the same time, the document confirms that the TNMM remains appropriate where the service provider performs routine functions and assumes limited risks.

The document also strengthens the guidance on documenting both the provision of intra-group services and the determination of arm’s-length service charges.

Emerging topics

The consultation document also addresses emerging topics such as AI-driven services and stock-based compensation in intra-group service arrangements.

How has the business community responded?

While multinational businesses, industry associations and professional advisers generally support the OECD’s efforts to modernise Chapter VII, they also raise a number of common concerns regarding the practical application of the proposed guidance.

Common concerns relate to the expanded guidance on the benefit test and documentation requirements, which may increase the evidentiary burden for taxpayers. Respondents also seek greater clarity on the distinction between shareholder activities, stewardship activities and chargeable services. Many respondents also caution against a broader use of the profit split method, noting that cost-plus and TNMM approaches remain appropriate for most intra-group service arrangements. Finally, respondents generally favour flexibility in the selection of allocation keys and request additional guidance on emerging transfer pricing issues, including AI-driven services and stock-based compensation.

What does this mean for multinational groups?

While the OECD does not appear to be changing the underlying transfer pricing principles for intra-group services, the document places greater emphasis on the practical application of the benefit test and supporting documentation. Multinational groups may therefore wish to review their existing service arrangements, allocation mechanisms and documentation frameworks.

Borgen Tax observation

Although positioned as a clarification, the proposed revisions are likely to influence how tax authorities assess intra-group services in practice. In particular, the expanded guidance on the benefit test, shareholder activities, allocation keys and documentation is expected to become increasingly relevant during transfer pricing audits. This is consistent with developments already observed in practice, where tax authorities in a number of jurisdictions are increasingly scrutinising HQ service charges and, in some cases, denying deductions on the basis that a sufficient benefit to the service recipient has not been substantiated.

The key challenge for the OECD will be to provide greater certainty without creating disproportionate compliance burdens. We will continue to monitor developments as the consultation process progresses.