Profit Test
According to the OECD Guidelines, this service is an economic or commercial interest for the entity receiving it, which benefits its commercial position.
Thus, the Transfer Pricing regulations of several countries throughout the region have incorporated the Profit Test, in which companies must provide the documentation and information requested by the Tax Administration as necessary conditions for the cost or expense deduction resulting from the provision of Intra-group Services.
Profit Test:
The Profit Test will be met when the given service provides economic value for the recipient of the service, improving or maintaining its commercial position. Thus, the taxpayer must document and provide information demonstrating the effective rendering of the service, its nature and the real need for it, the costs and expenses incurred by the service provider, as well as the reasonable criteria to allocate such costs and expenses.
We provide the review and evaluation service of all the “Intragroup Service” transactions to be prepared to comply with the Profit Test and an additional requirement for the deductibility of costs and expenses arising from this type of transaction.
| Fact to be accredited | Documentation |
|---|---|
| Effective rendering of the service | – Detailed contract documents (contract). – Results reports. – Compliance reports. – Work plans, implementation plans. – Corporate strategy. |
| Nature of the service provided | – Financial, technological, scientific, mining, commercial, among others. |
| Real need for the service | – Impact of the service on the improvement of the service recipient’s operability.
– The service can produce a potential advantage (medium or long term in the recipient’s utility). |
| Costs and expenses incurred by the service provider | – Identification of costs. – Identification of expenses. – Identification of the markup. |