Intragroup services are one of the areas of foremost focus for tax authorities regarding Transfer Pricing. Unlike other controlled transactions, their audit is not limited to pricing but also extends to the economic reality of the service, its benefit to the recipient, the operational substance of the supplier, and the correct allocation of costs and margins within the multinational group.
Indeed, poorly documented, incorrectly valued, or non-existent intragroup services often lead to significant Transfer Pricing adjustments. Therefore, understanding their tax treatment from a technical and preventive perspective is key to proper tax risk management.
What Are Intragroup Services?
In Transfer Pricing, intragroup services refer to those provided between related parties that perform an activity on behalf of another group entity in exchange for compensation.
These services may include, among others:
- Administrative and management services
- Financial and treasury services
- Information technology services
- Human resources services
- Legal, tax, or accounting support services
- Marketing and commercial support services
Conversely, not every activity carried out within a multinational group automatically qualifies as an intragroup service from a tax perspective, which requires a rigorous analysis of its economic nature.
Why Are Intra-Group Services Sensitive From a Tax Perspective?
Several factors can explain the tax sensitivity of intra-group services:
First, they often involve recurring payments that reduce the tax base of the recipient entity, which increases the tax authorities’ interest in them.
Second, many services are intangible or difficult to verify, which raises questions about their efficient provision or the actual benefit obtained.
Third, there is a risk of duplication, precisely when similar functions are already performed locally.
For these reasons, international guidelines require not only proof that the price is market-based, but also that the service exists, generates value, and does not constitute a shareholder activity.
Who Is Involved in Intra-Group Services?
At a minimum, the following parties participate in this type of transaction:
- The service provider, which assumes certain functions and costs, and
- The recipient, who obtains the expected profits.
Additionally, in more complex schemes, a shared service center, responsible for concentrating support functions for several companies in the group, may participate.
The correct identification of the parties, as well as their functions, assets, and risks, is crucial in defining the tax treatment and the applicable valuation methodology.
When Is an Intra-Group Service Acceptable from a Tax Perspective?
The existence of a tax-acceptable intra-group service is not defined by a mere contract or an accounting record of an expense. For Transfer Pricing, the analysis begins—and in many cases ends—with the verification of the benefit test.
This test requires demonstrating that the recipient entity obtains identifiable profits, assessed from an ex ante perspective. In other words, the key question is not whether the service generated higher profits, but whether an independent company, in comparable circumstances, would have considered it reasonable to pay for such a service or to perform it internally.
Indeed, this area tends to be the focus of the most significant tax adjustments. The authorities often reject expenses associated with services that, although formally described as such, do not actually increase value for the local business. Services that duplicate existing functions when corresponding to shareholder activities—such as general supervision of the group or global strategic decision-making—or when the service description is generic and does not allow for identifying its efficient execution, often raise questions.
Therefore, passing the benefit test requires concrete evidence: a detailed description of the service, identification of the specific benefit obtained, and a direct link to the recipient’s activity. Otherwise, the expense runs a high risk of being non-deductible, regardless of whether it is actually paid.
Main Tax Risk Source
The most significant risks in intragroup services tend to focus on:
- Structures with regional or global service centers
- Groups with significant management fees
- Cross-border transactions among jurisdictions with tax asymmetries
- Countries with specific anti-abuse rules or strict formal requirements
In these contexts, the absence of robust documentation or a clear intragroup services policy significantly increases the likelihood of adjustments. Furthermore, during auditing processes, authorities often analyze the grounds for the charge as well as the overall consistency of the arrangement, like the consistency among functions, costs, and benefits allocated; alignment with the group’s functional analysis; and the existence of contemporary evidence supporting the efficient provision of services.
Particularly when service charges represent a significant proportion of deductible expenses or are systematically repeated throughout the fiscal years, the likelihood of challenges increases. In these scenarios, the lack of adequate technical support can lead not only to Transfer Pricing adjustments, but also to the reclassification of the expense as non-deductible, with direct impacts on the tax base and exposure to penalties.
Valuation of Intragroup Services
The valuation of intragroup services must be based on the Arm’s Length Principle. Commonly, the Cost Plus method is often the most used, as many services are not comparably traded among third parties.
Conversely, its application requires:
- A correct identification of the cost base, excluding non-attributable costs
- Reasonable criteria for allocating costs among beneficiaries
- A markup consistent with the functional profile of the provider
In some cases, particularly when the service has a significant value-added component, other methods may be applicable if there is enough comparability.
Documentation and Support: A Critical Element
From a tax perspective, the documentation of intragroup services must go beyond generic contracts. It is essential to have:
- A detailed description of the services
- Evidence of actual performance
- An analysis of the benefit obtained
- A cost allocation methodology
- Justification of the method and margin applied
Poor documentation is often the principal trigger for adjustments in Transfer Pricing audits.
Does Your Group Charge for Intragroup Services?
Intragroup services are one of the areas of considerable tax risk within Transfer Pricing, but they are also an opportunity to optimize the group’s operating structure when managed correctly. Proper implementation requires a comprehensive technical approach composed of functional analysis, economic valuation criteria, and solid supporting documentation in accordance with current regulations and OECD guidelines.
In this context, a specialized advisor anticipates contingencies, strengthens the taxpayer’s tax position, and ensures that intragroup charges effectively reflect the creation of value within the business group.
TPC Group, a specialized Transfer Pricing firm, advises multinational groups on designing, valuing, documenting intragroup services, aligning business operations with international standards, and reducing risks before audits. Contact us for a technical and preventive assessment of your related-party transactions.
Source: OECD