TPA Global Webinar - Standardising Cost Recharges Post BEPS

After BEPS, another topic that has received significant attention has been that of intra-group services defined in Chapter VII of the OECD TP guidelines. While some clarity has been provided on the mark-up to be applied for low value adding services, some additional requirements have also been set forth on what types of costs can be pooled, who can effectively receive a recharge, how to classify pass-through costs etc. For large multinational groups involved in providing cross border services to each other, this often translates to administrative inconvenience and issues with deductibility in certain countries.

Now that real-time reporting of tax related data is becoming a reality, multinationals also need to be proactive in efficiently managing their cost structures both from an efficiency point of view as well as to prepare themselves from questions from the tax authorities of countries receiving a recharge.

TPA Global has been using a “3x3x3 model” especially with large multinationals (of operations in more than at least 10 countries) to:

  • streamline intra-group service costs;
  • remove inconsistencies between categorisation of cost per service;
  • appropriate allocation of costs to legal entities;
  • prepare a defense strategy.

Some key attributes of the 3x3x3 model are:

  • It classifies group entities into three regions i.e. US, EMEA and APAC and a regional shared service centre is appointed per region. 
  • It classifies services into three categories i.e. Global HQ services, Global Business Unit specific services and Regional Shared Service Centre services. 
  • It classifies entities involved in these transactions into three categories i.e. Contract Service provider, Lead Service Provider and Service Recipient. 

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