The draft is intended to update and modernise Chapter VII while aligning it more closely with the broader OECD transfer pricing framework. Importantly, it is a discussion draft and does not yet represent a consensus view. Final adoption will apply to OECD member countries, while non-OECD jurisdictions may take different approaches.

The consultation period provides an opportunity for stakeholders to influence the final outcome, with further consultation expected before finalisation, likely in 2027

A central theme of the revised guidance is that transfer pricing analysis must begin with accurate delineation. Labels such as “management services” or “administrative services,” or even the existence of intercompany agreements, are no longer sufficient to establish that a service exists or how it should be priced.

Instead, the analysis must focus on the commercial reality of the arrangement, including:

• Functions performed
• Assets used
• Risks assumed
• Interdependencies with other group activities

This represents a shift away from organisational or accounting classifications toward a substance-based approach aligned with the broader OECD framework. In practice, taxpayers must now clearly demonstrate what activities are performed, what value is created, and how independent parties would remunerate similar arrangements.

The draft also introduces more explicit guidance on aggregation and segmentation, recognising that intra-group services are often linked to other transactions such as goods or intangibles. Determining whether services should be evaluated separately or as part of a bundled transaction becomes a key analytical step.

The benefit test remains the cornerstone of intra-group service analysis, but its application is significantly clarified and reframed.

The core question is unchanged: would an independent enterprise be willing to pay for the activity or perform it itself? However, the draft introduces four factors to guide this analysis:

• Benefit includes any economic or commercial value
• Benefit may arise during or after the activity
• Benefit must be identifiable and reasonably expected at the time of the transaction
• Benefit must be factually possible and reasonably expected, though not guaranteed

Two important conceptual changes follow.

First, the benefit test is now explicitly part of accurate delineation rather than a separate step. This helps address a common issue where tax authorities have conflated the benefit test with pricing outcomes.

Second, the test must be applied at the level of each recipient entity. A service may satisfy the benefit test for some group entities but not others.

The treatment of specific categories is also clarified:

• Shareholder activities, duplication, and incidental benefits are no longer separate tests, but examples of situations where the benefit test may not be satisfied
• Senior management activities are not automatically shareholder activities; a factual analysis is required
• Duplication must be assessed case-by-case and may still be chargeable in certain circumstances
• Incidental benefits arising solely from group membership do not give rise to chargeable services
• On-call services may constitute a chargeable service where independent parties would pay for availability

Overall, the revised approach provides more structure but also places greater emphasis on evidence and judgement.

One of the most significant developments is the clear move away from a default cost-plus approach to pricing intra-group services.

The revised guidance confirms that:

• There is no presumption that cost-based methods are appropriate
• The most appropriate method must be selected based on the facts
• The service provider is not automatically the tested party

This opens the door to a broader range of pricing outcomes.

The distinction between direct and indirect charge approaches is retained. Direct charging remains preferable where feasible, but the draft acknowledges that this is not always practical, particularly for centralised or group-wide services.

Indirect charging using allocation keys remains acceptable, with increased emphasis on:

• Consistency across periods and recipients
• Avoidance of double counting
• Clear rationale for allocation keys

The guidance expands discussion of available methods:

• CUP may be appropriate where reliable comparables exist, but requires high comparability
• Cost-plus and TNMM remain suitable for routine services
• Transactional Profit Split Method is now explicitly recognised for more complex or integrated arrangements

This reflects a more nuanced view of intra-group services, particularly in areas such as R&D, digital services, and integrated business models.

The draft provides more detailed guidance on pass-through costs. The key distinction is:

• No mark-up should apply where the entity acts as a pure intermediary
• A mark-up is appropriate where the entity performs value-adding functions

The draft also highlights areas requiring further input, including the treatment of stock-based compensation. There is also recognition that withholding tax should generally apply only to the profit element rather than the full service charge.

The simplified approach for low value-adding services remains unchanged, including the 5% mark-up. However, this is not a minimum benchmark for other services.

A new documentation section introduces more detailed guidance specific to intra-group services.

While not intended as a formal checklist, the draft significantly expands expectations around contemporaneous evidence. Taxpayers may need to demonstrate:

• The expected benefit of services at the time they are performed
• The commercial rationale for arrangements
• Evidence of services rendered
• Detailed breakdowns of activities performed

For pricing, documentation should include:

• Construction of the cost base
• Allocation methodologies and justification of allocation keys
• Identification of pass-through versus marked-up costs
• Supporting calculations and consistency over time

In practice, this represents a meaningful increase in the evidentiary burden.

The revised Chapter VII does not change the fundamental arm’s length principle. However, it significantly changes how that principle is applied in practice.

Key changes include:

• Integration of the benefit test into accurate delineation
• Expanded guidance on method selection and removal of cost-plus assumptions
• Explicit recognition of profit split for services
• More detailed treatment of pass-through costs
• Introduction of a dedicated documentation section
• Addition of practical examples

Key elements that remain unchanged include:

• The definition of the benefit test
• The overall arm’s length framework
• The low value-adding services safe harbour

The revised Chapter VII aligns closely with the broader OECD transfer pricing framework developed post-BEPS.

The emphasis on accurate delineation, functional analysis, and economically significant risks reflects the principles established in Chapters I–III.

The revisions also sit alongside other OECD initiatives, such as Amount B under Pillar One, which introduces simplified approaches for baseline distribution activities. While not directly applicable to services, both initiatives reflect a broader push toward consistency and simplification.

The implications of the revised guidance are particularly significant in APAC, where intra-group services are already a major focus of tax authority scrutiny.

Australia

The ATO has identified intra-group services as a key audit focus, particularly where charges lack clear commercial benefit. The revised guidance is likely to reinforce scrutiny around benefit, allocation keys, and documentation.

Singapore

Singapore generally aligns closely with OECD principles and continues to refine its guidance, including recent updates on cost bases and stock-based compensation.

Japan

Japan has introduced new documentation requirements for intra-group transactions, requiring detailed explanations of pricing and allocation methodologies, with significant consequences for non-compliance.

China and India

As non-OECD members, these jurisdictions may diverge in practice. Both have historically taken stricter positions on intra-group services, increasing the risk of disputes for multinational groups.

The consultation draft provides an opportunity to reassess existing intra-group service arrangements.

Key actions include:

• Reviewing service arrangements against accurate delineation principles
• Strengthening support for the benefit test
• Reassessing pricing methodologies
• Reviewing treatment of pass-through costs
• Enhancing documentation processes
• Monitoring developments and engaging in consultation