With services that are provided on-call, a separate ‘standby’ fee is often charged for the short-notice availability of services, on top of the service fee for the service itself. We’ll explain this in more detail in the following paragraphs. When an MNE group uses this method, it is clear for transfer pricing purposes what service has been performed and how it was paid for. x�b```f``���~�cB�LWڅkŏwL`��$�R�����7��,P- pu@ ���wHs���fb{d&��*`�"��-�,#��x H3�5@� �r� Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. You can find the guidance in Chapter VII of the TP Guidelines, titled ‘Special Considerations for Intra-Group Services’. © 2020 EYGM Limited. MNE groups are not always able to apply direct charge arrangements, particularly if the value of the service cannot be directly apportioned to each associated enterprise. As indicated below, a source for such arm’s length royalty rates could be found in commercial databases. You may withdraw your consent to cookies at any time once you have entered the website through a link in the privacy policy, which you can find at the bottom of each page on the website. 0000002884 00000 n H��W[s�J~���G�e�a���tl9��-�,R9��}���bՀ,+?d�v���l%N0MO�w���˂�������4儑t}� C1uC�#���%o�.�ÕCF�0�op�6'q@ݘD>�q͛�u]�����*��L.�)V���η2��Wي�������M�t�F����Og���U����L'i:!_e>G�9�F1M1���aQ���RH�]7"����? We look at some of them in more detail below. We provide organizations with high-quality, easy-to-use, OECD compliant data on recent comparable license agreements, which can be used for transfer pricing and other purposes. 0000002936 00000 n Select one or more items in both lists to browse for the relevant content, Browse the selectedThemes and / or countries. �c�b[�����d���e�$�ኛӇ)���?������������)U90���'�C�J��=N�q���l�&O$��a��)g~���Z� � �:�������ο�xy��^C̻o����;2�ݑ���Gc��u���A��s����;%�m-L�0�������!F�������}Q�F|47$�[��M� ��$�]V�� ` ꆎ�*�)�����o�mU6�lj|d�^i8��SΉ�q�$!��j�:��y�~ԧ^|B>W�wn�a;'U��T :�1�D �COe�p��1�cH:q��6�GR�I��S�� YV���yU�$+W$�kQ�[<2=cEDM�WAK ���MU���3�}���@2�e�i�Ln5�ZC�)�F��:L?�1��Q�u`r�����w)s��K��k�ʡ8��w��:Y�#�j����\�F�m^��.� �@g��Ї�(I^.�� �}ݐWQ�V�HS�/*�X���M0�3���1+�r24�i���﻽��Y���14����؅=�X+����^-�Y^B�*@BY����$�HT��p�Xp9}����_LXS$>vEVb�u� E&��Y��: >�75���h@?%)��uC��Sx����1�ʊ�4iHVԣq `�F.�����6(X#+���Y�E��"�Ӂ'�4�L6�r_d�d(���%�ym�yA� ȸ �: ֧�@�R �tj,kSp �6��Q�R@9�rx.����&����(_ Noteworthy, the physical presence requirement is explicit in the “service PE” definition provided in paragraph 42.11-42.48 of the OECD commentary on Article 5 of the MTC. If you find that an independent enterprise in comparable circumstances would have either paid an unrelated party for the service or performed it themselves in-house, then it could be classed as an intra-group service. The cost plus method is most appropriate if there is not a comparable transaction available (where the nature of activities, use of assets and assumption of risks are comparable to those undertaken by independent enterprises). administrative, technical, financial, commercial, etc.) 0000000830 00000 n 0 EY is a global leader in assurance, consulting, strategy and transactions, and tax services. The exceptions to this are if the duplication is only temporary or is intentional to reduce the risk of a wrong business decision. This full version contains the full text of the Model Tax Convention as it read on 21 November 2017, including the Articles, Commentaries, non-member economies’ positions, the Recommendation of the OECD Council, the historical notes and the background reports. 0000000016 00000 n If you conclude that an independent enterprise in comparable circumstances would incur standby charges for the service, then you should class the availability of the service as an intra-group service in itself, and identify a suitable arm’s length charge. trailer Enter your email address below and we'll send you a link to verify your email and set your password. You may find the reports here: OECD BEPS Actions 8-10; OECD BEPS Action 13 For transfer pricing purposes, you need to determine whether the availability of on-call services can be classed as a separate service in itself, for which the taxpayer needs to determine an arm’s length charge. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. If not, it is probably not classed as an intra-group service. The OECD guidelines have been amended accordingly. The OECD provides an elective, simplified approach to applying and documenting arm’s length charges for low value-adding intra-group services. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. This would be classed as a shareholder activity rather than an intra-group service. Please refer to your advisors for specific advice. The OECD Guidelines for Multinational Enterprises are recommendations addressed by governments to multinational enterprises operating in or from adhering countries. The letting may be granted in connection with an enterprise (e.g. Spanish, This publication is the tenth edition of the condensed version of the OECD Model Tax Convention on Income and on Capital. There are exceptions to this, however. If you need reliable comparables data on service fees, you can search the RoyaltyRange service fees database for real, recent third-party agreements covering over 30 service types. You can browse our site or look for something specific. We outline some of them below. The first step in doing this is to identify whether the MNE groups charged the associated enterprises directly or indirectly for the provision of services between them. For example, if a parent company raises funds for a group member, which then uses them to acquire a new company, this would be an intra-group service because the service benefits the group member financially and commercially. English Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. French. 0000005357 00000 n Some services are provided on-demand. 0000000959 00000 n As such, they use indirect methods to charge for intra-group services. Our RoyaltyRange royalty rates database is the preferred source of comparables data for European transfer pricing practitioners. This makes it simple to determine whether the fee is at arm’s length. If an MNE group member has performed activities to “meet an identified need” of other members of the MNE group, it is fairly simple to identify whether an intra-group service has been provided. For more information about our organization, please visit ey.com. The MNE group member probably didn’t request the service and, as such, the parent company should bear the costs. ... BVI Co does not pay taxes on the royalty fee income. 25 13 Relief from Royalty Excess Earnings Cost Greenfield With or Without 15 OECD TP WP6: Illustrative Example of Intangible Asset Valuation Introduction Methodology Recap Illustrative Example Conclusion Equity Price $0.8 Billion Net Debt $0.4 Billion Tangible Assets $0.5 Billion Enterprise Value $1.2 Billion OECD.Stat enables users to search for and extract data from across OECD’s many databases. Please tick this box if you would also be interested in a search strategy write-up. OECD iLibrary xref This publication is the tenth edition of the full version of the OECD Model Tax Convention on Income and on Capital. distribution, management and procurement services), 60 fee types (including sales commission, management fees and agent fees) and 30 fee bases (sales, cost, EBITDA, asset value, etc.). Another very important deliverable by the OECD is the Guidance on Transfer Pricing Documentation and Country-by-Country Reporting. They provide non-binding principles and standards for responsible business conduct in a global context consistent with applicable laws and internationally recognised standards. So, what are low value-adding intra-group services? Sometimes, MNE group members can benefit incidentally from intra-group services provided to other group members. For such services, it is more difficult to determine whether the benefits test is satisfied (i.e. Once you have identified that an intra-group service has been provided, you need to determine whether the service fee charged was in line with the arm’s length principle. It is an appropriate method if: To find out more, read our blog on the CUP method. %%EOF In order to constitute a low value-adding intra-group service, a service must be: Examples of services that would likely count as low value-adding intra-group services are: Examples of services that would generally not qualify for the simplified approach are: You can find more in-depth advice about low value-adding intra-group services in Section D of the OECD’s Transfer Pricing Guidelines. %PDF-1.4 %���� We provide you with access to real service fees agreements, covering more than 30 service types (e.g. Just like with any intra-group transaction, the fee must be the same as what it would have been had the service been provided to an independent party. How do you create customer intimacy without proximity? Also available in: All Rights Reserved. Do you need third-party service fees data for your transfer pricing analysis of intra-group services? A direct-charge method means that associated enterprises have charged each other directly for specific services. This is called the benefits test. The cost plus method adds a markup on the supplier’s costs for the service so that the supplier makes an appropriate profit that takes into account the functions they performed and the current conditions of the market. In IP structure like the one at hand was quite common for MNEs until not so long ago, and in a lot of cases the tax authorities did not have proper tools to challenge it. for which an independent enterprise would have been willing to pay or perform for itself.”. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. The OECD defines an ‘intra-group service’ as: “An activity (e.g. Approval was partially successful, following selected items could not be processed due to error, http://instance.metastore.ingenta.com/content/component/mtc_cond-2017-15-en, https://doi.org/10.1787/mtc_cond-2017-15-en, South Georgia and the South Sandwich Islands, Model Tax Convention on Income and on Capital: Condensed Version, Model Tax Convention on Income and on Capital: Condensed Version 2017. On this page, you will find information about what intra-group services are, how to identify if such services have been provided, and how to analyze them for transfer pricing purposes. This shorter version contains the articles and commentaries of the Model Tax Convention on Income and Capital as it read on 21 November 2017, but without the historical notes and the background reports that are included in the full version. If a parent or holding company provides a service to one of the MNE group members in its capacity as shareholder, this wouldn’t count as an intra-group service. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. This publication is the tenth edition of the condensed version of the OECD Model Tax Convention on Income and on Capital.This shorter version contains the articles and commentaries of the Model Tax Convention on Income and Capital as it read on 21 November 2017, but without the historical notes and the background reports that are included in the full version. In comparable circumstances, an independent enterprise would have met the identified need by performing the service in-house or hiring a third party to perform it. Some intra-group services are classed as low value-adding. The OECD’s guidance on intra-group services. 5. the use of literary copyright granted by a publisher or the use of a patent granted by the inventor) or quite independently of any activity of the grantor (e.g.