OECD’s 2026 Intra-Group Services Draft: Why an Invoice Fails

Every multinational group has service charges. A regional headquarters allocates technology costs. A parent company provides finance support. A shared-service centre handles payroll, cybersecurity, procurement or legal coordination. Someone raises an annual invoice. Another person applies a markup. A third prepares a spreadsheet to explain the allocation key.

Then the transfer pricing audit begins.

The first question is often not whether the markup is 5%, 8%, or 12%. It is more basic: what exactly did the Indian company receive in exchange for the charge?

That simple question has caused years of disputes in many countries. Businesses often think a service agreement, an invoice and a cost-allocation workbook should be enough. Tax authorities expect more. They want evidence that the work was actually done. They want a clear account of the benefit each entity received. The allocation method must also be defensible. They want proof that the price reflects commercial reality.

The OECD published a public consultation draft on intra-group services in June 2026. It tries to bring clarity to a hard area. The draft proposes large changes to Chapter VII of the OECD Transfer Pricing Guidelines. That chapter deals with services between associated enterprises. The document is not final. Taxpayers should not treat it as adopted guidance. Its direction is still clear. Groups must move away from generic management-fee narratives. They must build service-charge frameworks on evidence.

For Indian companies, the timing matters. India's transfer pricing reporting is becoming more granular. Cross-border service charges remain a regular focus in assessments, withholding-tax reviews and financial close. The practical message is simple. An invoice records a charge. It does not prove a service.

Why the OECD Is Revisiting Intra-Group Services Now

Cross-border business models have changed a lot. Groups now centralise functions such as technology, cybersecurity, data analytics, supply-chain planning, finance, human resources and regulatory support. A company can receive real value from a global team. It may never meet that team in person. It may receive no neat, tangible deliverable.

Centralising also creates a clear tax risk. A group can spread large costs across subsidiaries using broad labels. "Management support" and "administrative services" are common examples. The recipient may not be able to say what it received. It may not be able to say why it should bear the charge.

The OECD draft addresses both sides. Tax authorities should not second-guess a group's decision to centralise. A local company might have done the work in-house. It might have bought the service locally. That alone does not make the charge wrong. Taxpayers, in turn, should give enough information. They must show that services were really rendered and priced at arm's length.

That balance matters. Transfer pricing should test the tax results of a business arrangement. It should not invite the tax authority to redesign the group's operating model.

The First Rule: Describe the Actual Transaction, Not the Invoice Label

The draft puts strong emphasis on "accurate delineation". In simple terms, the analysis starts with what actually happened.

Calling a payment an "administrative service fee" does not prove the service was provided. A contract does not settle the question either. And the absence of an invoice or agreement does not prove that no service occurred.

Take a regional headquarters that charges an Indian subsidiary for "strategic support". That phrase can describe very different activities. It may cover shareholder-level oversight. That should not be charged to the subsidiary. It may include real operational advice on pricing, procurement, cybersecurity or supply-chain disruption. That advice can give a measurable benefit. Often the charge mixes both.

A better label is not the answer. A proper functional analysis is. Who did the work? What resources were used? Which entity received the benefit? What risks were taken? Would an independent business have paid for the activity, or done it itself?

Many service-fee policies fail here. They start with the cost pool and work backward. The better way is to start with the business activity and work forward.

The Benefit Test: Would an Independent Business Pay for This?

The benefit test remains central to the OECD approach. An intra-group service exists when an activity gives the recipient economic or commercial value. That value must enhance or maintain its business position. The practical question is simple. Would an independent enterprise, in similar circumstances, have paid someone else for the activity? Or would it have done the work in-house?

The draft adds nuance: the benefit can be expected rather than realised at once.

Imagine a group rolling out a new enterprise resource planning system across subsidiaries. The Indian company assigns staff, attends implementation meetings and prepares to move its finance and inventory data. Then key local employees leave. The rollout slips. The expected benefit did not arrive on schedule.

That does not mean there was no service. At the time, the company reasonably expected to receive value. Commercial projects sometimes fail, run late or deliver less than expected. Independent businesses still pay for genuine effort. The original decision made business sense.

Repeated failure, though, needs a closer look. If the same charge runs year after year with no real value, ask a question. Would an independent enterprise keep paying? "We have always allocated it" is not a business reason.

Do Not Confuse Benefit With Price

One of the most useful points in the draft is this. The benefit test and the pricing analysis are separate.

A subsidiary may receive a real service and still be overcharged. Consider IT support the subsidiary needs. The parent's internal cost may be far higher than an equivalent service available locally. The service is real. Whether the charge is arm's length is a separate question.

The distinction matters in audits. Proving a benefit does not validate the amount charged. And a tax authority should not deny the whole expense just because it disagrees with the markup or the cost base.

Work in sequence. First establish whether the service exists. Then work out the correct arm's-length remuneration.

Shareholder Activities: Costs a Parent Cannot Recharge

A recurring dispute involves costs incurred because an entity owns shares in other group companies.

Some parent-company activities benefit the shareholder, not the subsidiaries. Examples include shareholder meetings, share issues, stock-exchange listing, investor relations and consolidated financial statements. Compliance with the parent's own tax obligations also belongs here. These are shareholder activities. They should stay with the relevant shareholder.

But the boundary is not always obvious.

Suppose the global CEO meets the Indian subsidiary. If the meeting covers only group-level investor expectations, it may be shareholder oversight. But the CEO may help resolve an operational crisis. The CEO may review a market-entry decision. The CEO may support a restructuring that directly benefits the Indian company. The activity may then be a service.

The identity or seniority of the employee does not decide the issue. The actual activity does.

This is a useful reminder for finance teams preparing annual cost allocations. A parent-company cost centre should not be recharged mechanically. Every material category needs a commercial explanation.

Duplication Is Not Always Waste

Tax authorities often challenge charges by saying that the local company already has its own finance, legal, marketing, or technology team.

Sometimes that challenge is valid. A company should not pay twice for the same work.

But apparent duplication can make commercial sense. A local legal team may seek a second opinion on a major transaction. A subsidiary may keep local compliance staff while the parent runs consolidated risk management. A regional IT team may support a migration while local staff handle daily operations. Integration or restructuring often makes some duplication hard to avoid.

The draft asks for a case-by-case analysis of each activity. Look at its nature, scope, duration and purpose. Broad labels are not enough. "Marketing" can cover strategy, campaign execution, market research, content and local distribution support. Two teams under that label may do very different work.

The real question is whether the second activity adds value. Would an independent enterprise recognise that value?

Allocation Keys: The Spreadsheet Must Follow the Business Logic

Where a service goes to a single entity, direct charging is usually easier to defend. The provider can record project time, personnel costs and relevant resources.

The challenge starts when several group entities benefit. Shared-service centres often use indirect allocation. Tracking every employee hour by recipient would cost far too much.

Indirect allocation is not weak by nature. But the allocation key must reflect the expected benefit.

Headcount may be sensible for human-resource support. The number of users may work for certain IT systems. Transaction volumes may be appropriate for accounting support. Revenue may be relevant for some commercial services. None of these keys is always correct.

Take a regional marketing team. It supports one newly launched market and four mature markets. A revenue-based key may undercharge the new market, even though that market gets the most support. Time spent, campaign spend, or another measure may fit better.

A neat spreadsheet is not the goal. A commercially rational allocation is.

Cost-Plus Is Common, but It Is Not Automatic

Many intra-group service policies default to cost-plus pricing. The draft warns against assuming that a cost-based method is always right.

The right method depends on the facts. A comparable uncontrolled price may fit where comparable third-party services exist. Cost-plus may work where a gross markup can be supported. A transactional net margin method may suit where net margins give a more reliable comparison. Profit split may be relevant where both parties contribute unique value. It also fits where they operate as one business or share significant risks.

This matters for complex arrangements. Routine payroll support is one thing. A technology centre building proprietary systems is another. So is a research hub that creates valuable know-how, or an integrated team contributing to a strategic intangible.

The phrase "service provider" does not mean "routine cost-plus entity".

Pass-Through Costs: Not Every Rupee Needs a Markup

The draft also looks closely at pass-through costs.

Suppose a regional entity buys advertising space for several subsidiaries. If it is only a paying agent, the media spend may be recharged with no markup. A markup may still be right on its own agency-related costs. That applies where it carries out extra marketing work, such as content creation or market research.

The same logic applies to software licences, travel, third-party consultants and other costs. Does the intermediary add value? Or does it settle a bill the recipient would otherwise have paid directly?

Marking up every cost may inflate the charge. Excluding every third-party cost may understate the provider's contribution. The right treatment depends on functions, risks and comparable commercial behaviour.

Stock-Based Compensation Has Entered the Discussion

One relevant issue is stock or share-based compensation. The draft asks stakeholders whether more guidance is needed on its treatment in intra-group services. It names timing, accounting treatment and valuation as open questions.

This is not theoretical. Indian captives often employ staff who receive stock-based compensation from an overseas parent. Should that cost sit in the service provider's cost base for transfer pricing? That is the question.

The answer can move profitability. For a large technology or shared-service centre, the choice may push the company outside its target margin range. Groups should not wait for year-end to find out. The accounting treatment, the intercompany agreement, the invoicing and the transfer pricing policy must all say the same thing.

Low Value-Adding Services: The 5% Simplified Approach Remains Relevant

The draft retains the existing simplified framework for low value-adding intra-group services.

These are supportive services. They are not part of the group's core business. They do not use or create unique and valuable intangibles. Nor do they carry significant risk. Examples include routine payroll processing, some accounting support and administrative tasks.

Under the simplified approach, a 5% markup may be applied to relevant costs. Appropriate pass-through costs come out first. No separate benchmarking study is needed for the markup. The group still needs a defensible cost pool, suitable allocation keys and written agreements. It also needs the calculations and an explanation of expected benefits.

The simplicity should not be overstated. A shared-service-centre activity is not low value just because it is centralised. Routine IT support for a dairy-products group may qualify. Proprietary credit-risk modelling inside an investment bank may not.

The nature of the activity matters more than the department name.

Documentation: A Live Evidence File, Not an Annual Dig

Perhaps the most practical part of the draft is its focus on contemporaneous evidence.

Useful records may include explanations of expected benefits, internal approvals, meeting minutes, emails, technical documents and implementation schedules. Agreements, project materials, presentations, reports, advice memoranda and samples of IT tickets also help.

This does not mean every email should be preserved forever. Documentation should stay in line with the size and materiality of the charge.

But one practice should end. Reconstructing a multi-crore service fee from a generic agreement and a spreadsheet prepared eighteen months later no longer works.

A strong evidence file is built during the year. Finance should understand the cost pools. Operational teams should keep meaningful deliverables. Tax teams should review allocation keys. Agreements should reflect actual conduct. Year-end should be a reconciliation exercise, not a dig.

What Businesses Should Do Now

The OECD document is still a consultation draft. It is not a reason for panic or immediate restructuring.

It is, however, a reason to test whether the existing service-charge model could survive a practical review.

For each material service category, a business should answer five questions without an emergency meeting. What was done? Who did it? Who benefited? Why does the allocation key make sense? How was the charge priced?

If those answers exist only inside one employee’s inbox or in a spreadsheet called “final_final_latest”, the framework is not ready.

Conclusion: A Better Standard for a Difficult Area

Intra-group services will remain one of the most judgment-heavy areas of transfer pricing. No guideline can turn every management fee into a mechanical calculation.

But the OECD draft points to a better standard. Start with the real activity. Apply the benefit test carefully. Keep existence separate from pricing. Distinguish shareholder costs from real services. Use allocation keys that reflect commercial value. Keep the evidence while the work is happening.

The larger lesson is not about documentation for its own sake. It is about making the service-charge model intelligible.

If a business cannot explain an intercompany charge in plain English, an invoice will not rescue it during an audit.