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, someone applies a markup, and someone prepares a spreadsheet explaining 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 generated years of disputes across jurisdictions. Businesses frequently believe that a service agreement, an invoice, and a cost-allocation workbook should be enough. Tax authorities often expect much more: evidence that the activity was actually performed, a clear explanation of the benefit received by each entity, a defensible allocation methodology, and proof that the pricing reflects commercial reality.

The OECD’s June 2026 public consultation draft on intra-group services is an important attempt to bring greater clarity to this difficult area. The draft proposes substantial revisions to Chapter VII of the OECD Transfer Pricing Guidelines, which deals with services between associated enterprises. Although the document is not yet final and taxpayers should not treat it as adopted guidance, its direction is clear: multinational groups need to move away from generic management-fee narratives and toward evidence-based service-charge frameworks.

For Indian companies, this discussion is particularly timely. India’s transfer pricing reporting architecture is becoming more granular, and cross-border service charges remain a regular focus area in assessments, withholding-tax reviews, and financial close processes. The practical message is straightforward: 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 materially. Multinationals increasingly centralise functions such as technology, cybersecurity, data analytics, supply-chain planning, finance, human resources, and regulatory support. A company may receive substantial value from a regional or global team without meeting that team physically or receiving a neat, tangible deliverable.

At the same time, centralisation creates an obvious tax risk. A group can allocate substantial costs across subsidiaries using broad descriptions such as “management support” or “administrative services”, even where the recipient cannot explain what it received or why it should bear the charge.

The OECD draft tries to address both sides of the equation. Tax authorities should not second-guess a multinational’s commercial decision to centralise services merely because a local company could have performed the activity in-house or purchased it locally. Equally, taxpayers should provide enough information to show that services were genuinely rendered and priced on arm’s-length terms.

That balance matters. Transfer pricing should test the tax consequences of a commercial arrangement. It should not become an invitation for the tax authority to redesign the group’s operating model.

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

The draft places strong emphasis on “accurate delineation”. In simple terms, the analysis must begin with what actually happened.

Calling a payment an “administrative service fee” does not prove that administrative services were provided. A contract also does not settle the question by itself. Conversely, the absence of a formal invoice or agreement does not automatically prove that no service occurred.

Consider a regional headquarters that charges an Indian subsidiary for “strategic support”. That phrase could describe very different activities. It might cover shareholder-level oversight, which should not be charged to the subsidiary. It could include genuine operational advice on pricing, procurement, cybersecurity, or supply-chain disruptions, which may provide a measurable business benefit. It might also include a mixture of both.

The solution is not a better label. It is a proper functional analysis: who performed the work, what resources were used, which entity received the benefit, what risks were assumed, and whether an independent business would have paid for the activity or performed it internally.

This is where many service-fee policies fail. They start with the cost pool and work backward. The better approach 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 where an activity gives the recipient economic or commercial value that enhances or maintains its business position. The practical question is whether an independent enterprise in comparable circumstances would have paid someone else to perform that activity or performed it in-house.

The draft adds useful nuance: the benefit can be expected rather than immediately realised.

Imagine a global group rolling out a new enterprise resource planning system across subsidiaries. The Indian company assigns personnel, attends implementation meetings, and prepares to migrate its finance and inventory data. The rollout is delayed because key local employees leave midway through the project. The expected operational benefit did not materialise on schedule.

That does not automatically mean there was no service. At the time of the rollout, the company reasonably expected to receive value. Commercial projects sometimes fail, run late, or deliver less than expected. Independent businesses still pay for genuine efforts where the original decision was commercially rational.

However, repeated failure requires closer examination. If the same charge continues year after year without meaningful value, management should ask whether an independent enterprise would continue paying for it. “We have always allocated it” is not a business reason.

Do Not Confuse Benefit With Price

One of the most useful clarifications in the draft is that the benefit test and the pricing analysis are separate.

A subsidiary may receive a genuine service but still be overcharged. For example, a parent company may provide IT support that the subsidiary needs, but the parent’s internal cost may be substantially higher than the price of an equivalent service available locally. The service is real. Whether the charge is arm’s length is a separate question.

This distinction is important during audits. Taxpayers should not assume that proving a benefit automatically validates the amount charged. Tax authorities should not deny the entire expense merely because they disagree with the markup or cost base.

The analysis should proceed in sequence: first establish whether the service exists, then determine the correct arm’s-length remuneration.

Shareholder Activities: The Parent Cannot Recharge the Cost of Being a Parent

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

Certain parent-company activities benefit the shareholder rather than the subsidiaries. Examples include costs relating to shareholder meetings, issuing shares, stock-exchange listing, investor relations, preparation of consolidated financial statements, and compliance with the parent company’s own tax obligations. These are generally shareholder activities and should remain with the relevant shareholder.

But the boundary is not always obvious.

Suppose the global CEO participates in a meeting with the Indian subsidiary. If the meeting relates only to group-level investor expectations, it may be shareholder oversight. If the CEO helps resolve an operational crisis, reviews a market-entry decision, or supports a business restructuring that directly benefits the Indian company, the activity may constitute 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 be commercially rational. A local legal team may seek a second opinion on a major transaction. A subsidiary may maintain local compliance personnel while the parent performs consolidated risk management. A regional IT team may support a migration project even though local employees handle daily operations. During an integration or restructuring, temporary duplication may be unavoidable.

The draft encourages a case-by-case analysis of the nature, scope, duration, and purpose of the activities. Broad labels are not enough. “Marketing” can cover strategy, campaign execution, market research, content development, and local distribution support. Two teams working under that label may perform entirely different functions.

The real question is whether the second activity provides incremental value that an independent enterprise would recognise.

Allocation Keys: The Spreadsheet Must Follow the Business Logic

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

The challenge begins when services benefit multiple group entities. Shared-service centres often use indirect allocation methods because tracking every employee hour or activity by recipient would be disproportionately burdensome.

Indirect allocation is not inherently weak. 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 universally correct.

Consider a regional marketing team supporting one newly launched market and four mature markets. Allocating costs purely on current revenue may undercharge the new market even though it receives the most intensive support. Time spent, campaign expenditure, or another measure may better reflect the expected benefit.

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 cautions against assuming that a cost-based method is always the right answer.

The correct method depends on the facts. A comparable uncontrolled price may be appropriate where sufficiently comparable third-party services exist. A cost-plus method may work where a gross markup can be supported. A transactional net margin method may be suitable where net margins provide a more reliable comparison. A profit-split method may become relevant where both parties contribute unique value, operate in an integrated manner, or share economically significant risks.

This matters for sophisticated service arrangements. A group entity providing routine payroll support is different from a technology centre developing proprietary systems, a research hub creating valuable know-how, or an integrated team contributing to a strategic intangible.

The phrase “service provider” does not automatically mean “routine cost-plus entity”.

Pass-Through Costs: Not Every Rupee Needs a Markup

The draft also gives useful attention to pass-through costs.

Suppose a regional entity pays for advertising space on behalf of several subsidiaries. If it merely acts as a paying agent, the media spend may be recharged without a markup. A markup may still be appropriate on the entity’s own agency-related costs where it performs additional marketing work, such as content creation or market research.

The same logic can apply to external software licences, travel costs, third-party consultants, and other expenses. The question is whether the intermediary adds value or simply settles a bill that the recipient would otherwise have paid directly.

Marking up every cost indiscriminately may create an inflated charge. Excluding every third-party cost automatically may understate the value of the service provider’s contribution. The correct treatment depends on functions, risks, and comparable commercial behaviour.

Stock-Based Compensation Has Entered the Discussion

One particularly relevant issue is stock or share-based compensation. The draft asks stakeholders whether additional guidance is needed on its treatment in intra-group services, including timing, accounting treatment, and valuation.

This is not theoretical. Indian captives frequently employ personnel who receive stock-based compensation from an overseas parent. The question is whether that cost should form part of the service provider’s cost base for transfer pricing purposes.

The answer can materially affect profitability. For a large technology or shared-service centre, excluding or including stock-based compensation may move the company outside its targeted margin range. Groups should not wait for year-end to discover the impact. The accounting treatment, intercompany agreement, invoicing mechanism, and transfer pricing policy need to speak the same language.

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

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

Broadly, these are supportive services that are not part of the group’s core business, do not use or create unique and valuable intangibles, and do not involve significant risk. Examples may include routine payroll processing, certain accounting support, or administrative activities.

Under the simplified approach, a 5% markup may be applied to relevant costs, excluding appropriate pass-through costs, without a separate benchmarking study for the markup. The group still needs a defensible cost pool, suitable allocation keys, written agreements, calculations, and an explanation of expected benefits.

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

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

Documentation: Replace the Annual Archaeological Dig With a Live Evidence File

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, implementation schedules, agreements, project materials, presentations, reports, advice memoranda, and even samples of IT tickets.

This does not mean every email should be preserved forever. Documentation should remain proportionate to the nature and materiality of the charge.

But the days of reconstructing a multi-crore service fee from a generic agreement and a spreadsheet prepared eighteen months later should end.

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

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, businesses should be able to answer five questions without calling an emergency meeting: what was done, who performed it, who benefited, why the allocation key makes sense, and how the charge was 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 convert every management fee into a mechanical calculation.

But the OECD draft points toward a better operating standard: start with the real activity, apply the benefit test carefully, separate existence from pricing, distinguish shareholder costs from genuine services, use allocation keys that reflect commercial value, and retain evidence while the work is actually 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.