Introduction

The OECD’s public consultation document released on June 1, 2026, proposes revisions to Chapter VII of the OECD Transfer Pricing Guidelines that deals with intra-group services. The OECD explains that the purpose of the exercise is to update and modernize the chapter, align it more closely with the foundational principles in Chapters I to III, and supplement the guidance with an expanded set of examples. At the same time, the OECD expressly states that the revisions are not intended to change the general principles underlying the transfer pricing analysis of intra-group services.

The consultation draft seeks to recalibrate the starting point for intra-group service arrangements. Historically, most service transactions have been approached through a familiar sequence: demonstrate that a service has been rendered, establish that the recipient has received a benefit, and then apply a cost-based pricing model, most commonly under a cost-plus method or a cost-based Transactional Net Margin Method (TNMM). This framework, while widely used in practice, has often contributed to an implicit perception that intra-group services are naturally or ordinarily rewarded on a cost basis. The revised Chapter VII revisits this approach by placing greater emphasis on accurate delineation, transaction-specific method selection, and the economically relevant characteristics of the arrangement.

The draft reiterates that labels such as ‘administrative services,’ ‘management services,’ or ‘procurement support services’ should not determine the transfer pricing analysis. Nor, importantly, should there be a presumption that a one-sided method is appropriate or that the service provider must be the tested party. Instead, intra-group services are to be analyzed under the same arm’s length principles that apply to any other controlled transaction. This is a notable development for multinational groups with procurement hubs, sourcing centers, supply chain management organizations, regional service platforms, technology teams, and other centrally performed functions that may historically have been priced using standard cost-based outcomes.

Accurate Delineation: The Starting Point for Service Pricing

One of the central themes of the consultation draft is that transfer pricing analysis must begin with accurate delineation. Paragraphs 7.6 and 7.7 reinforce that contractual labels, internal descriptions, and accounting treatment do not dictate whether a service exists or how it should be priced. The mere description of a payment as a service fee or the existence of written contracts, is not by itself sufficient evidence that services have been rendered. Equally, the absence of a formal charge or agreement does not automatically mean that no service has been provided. The assessment should be factual and focus on the commercial relation between the parties.

This is a notable development because many service arrangements have historically been categorized based on organizational structure rather than economic substance. The OECD's revised language appears to align Chapter VII more closely with the post-BEPS analytical framework applied elsewhere in the Guidelines. Under this framework, taxpayers must first understand the economically relevant characteristics of a transaction before selecting a pricing method.

In practical terms, this means that the following questions become increasingly important:

• What activities are actually being performed?
• What commercial outcomes are being generated?
• What value drivers underpin those outcomes?
• How do independent enterprises remunerate comparable activities?

For many groups, functions such as procurement coordination, commercial support, supply chain management, or strategic implementation have often been referred to as ‘services’ almost as a matter of administrative convenience. The OECD does not deny that such arrangements may indeed involve routine services, but it makes clear that the correct transfer pricing treatment must follow a proper analysis of what is actually being done and how independent parties in comparable circumstances would price comparable arrangements.

Only after these questions have been addressed should the transfer pricing method be selected.

Expansion of Benefit Test and Its Separation From Pricing

The OECD's revised guidance reinforces that the purpose of the benefit test is to establish whether an independent enterprise would be willing to pay for the activity. Once that threshold has been satisfied, the pricing analysis becomes a separate exercise.

However, the draft clarifies that the relevant benefit may be expected rather than realized. A service may still be regarded as having been provided where the recipient reasonably expected to derive a benefit at the time the activity was performed, even if the anticipated benefit ultimately did not materialize. The draft illustrates this principle through examples involving ERP implementation, cybersecurity, and business development initiatives.

The OECD also recognizes that benefits may arise during or after the period in which the activity takes place, and that multi-year evidence may be relevant where expected benefits fail to materialize. This is a practical and welcome clarification for groups investing in transformation projects, digital systems, and long-horizon operational initiatives. The draft therefore moves away from an unduly narrow view of benefit that focuses only on immediate or realized returns.

The OECD expressly separates the benefit test from the determination of arm’s length remuneration. The draft states that these are separate analyses and should not be conflated. This clarification is important because value-linked service remuneration models are sometimes criticized on the basis that the resulting fee exceeds the provider's underlying costs. However, once the existence of a genuine service and recipient benefit has been established, the relevant transfer pricing question is not how much the provider spent, but how comparable services are priced in the marketplace.

Guidance on Shareholder Activities, Duplication, and Incidental Benefits

The draft significantly expands the practical guidance on scenarios in which the benefit test may, or may not, be satisfied. In relation to shareholder activities, the draft refines the distinction between true shareholder activity and wider stewardship or management activity. Activities performed solely because of an ownership interest and which benefit only the relevant shareholder, remain non-chargeable. The draft includes familiar examples such as activities relating to juridical structure, parent-level reporting and audit, investor relations, capital raising for acquisitions of equity interests, and compliance with the parent’s own tax obligations.

At the same time, the draft cautions that activities performed by parent-company personnel, including senior management, should not automatically be treated as shareholder activity. Whether those activities are chargeable depends on the factual and functional analysis. The draft therefore offers useful support for distinguishing between non-chargeable ownership functions and chargeable coordination, advisory, technical, or operational support.

On duplication, the draft confirms the general proposition that no service exists where one group member merely duplicates an activity already performed by the recipient or by another provider. However, it also confirms that duplication is a case-by-case inquiry. Apparent overlap may still be chargeable where the activity is temporary, complementary, undertaken for risk mitigation, such as obtaining a second opinion, or required by regulation to be performed both locally and centrally. Similarly, the draft explains that indirect or remote benefits do not create a chargeable service, and passive association benefits arising merely from group membership do not satisfy the benefit test where no relevant activity has been performed.

The inclusion of express guidance on ‘on-call’ services is also notable. The OECD recognizes that the availability of services itself may sometimes constitute a service for which an arm’s length standby charge is appropriate, but only where independent enterprises in comparable circumstances would be willing to incur such charges. This reinforces the need for a fact-specific analysis of retainer-type arrangements, legal support rosters, IT response coverage, and similar models.

Embedded Services and Mixed Transactions Require More Careful Delineation

The consultation draft recognizes that controlled transactions may involve services alongside transfers of goods, the use or transfer of intangibles, or broader integrated business arrangements. In such cases, the analysis must determine whether the service element should be evaluated on a separate basis or together with the linked transaction, applying the aggregation and segregation principles in Chapter III of the OECD Guidelines.

This guidance is particularly relevant for technology implementation projects, post-acquisition integration support, arrangements involving proprietary frameworks or know-how, and service models connected with license administration or intangible protection. The OECD’s examples make clear that a bundled price or a single invoice is not determinative. If a transaction-by-transaction analysis is more reliable, the service component may need to be separated. Conversely, where the arrangement allows the recipient to internalize and independently use group know-how, the analysis may move beyond services into the realm of intangibles.

The Draft Rejects ‘Cost-Plus by Default’

Perhaps the most commercially important element of the draft is its rejection of methodological presumptions for intra-group services. Paragraph 7.52 of the consultation paper states that the most appropriate pricing method must be selected in accordance with the general guidance in Chapters I to III, and that it should not be assumed that a cost-based method is always preferred for services. Nor should it be assumed that the service provider is always the tested party.

Many service arrangements have over the years been analyzed through an implicit hierarchy under which cost-plus or TNMM has often been the starting point, and other methods tend to be considered only in exceptional cases. The revised Chapter VII appears to reject that hierarchy. In doing so, it reopens the space for alternative methods where the facts justify it.

The consultation draft gives renewed attention to the Comparable Uncontrolled Price (CUP) method, stating that it is likely to be the most appropriate method where there is a comparable service provided between independent enterprises in the recipient’s market or by the associated enterprise to independent parties in comparable circumstances. At the same time, it emphasizes that CUP requires a high degree of comparability and should not be used where material differences cannot be reliably adjusted. This is particularly important in areas such as procurement coordination, sourcing support, sales support, logistics coordination, and category management, where independent-market pricing may be linked to transaction value, revenue, spending, or other market-based metrics rather than provider cost alone.

The draft does not endorse all value-linked service fee models. However, it does reinforce a more fundamental proposition: that services should be priced according to the most appropriate method, and that this method may in some cases be grounded in market evidence showing that independent parties charge on a value-linked basis. In that sense, the proposed revisions suggest the need for revisiting legacy service models that have historically defaulted to routine cost-based remuneration.

Documentation Expectations Have Clearly Increased

The consultation document introduces a ‘Documentation’ section under Chapter VII, which is framed as supplementary guidance rather than a mandatory checklist, but essentially raises the evidentiary bar. The OECD states that the level and detail of documentation should be proportionate to the materiality and nature of the services. A broad range of contemporaneous evidence is identified to substantiate the benefit test and pricing. This includes explanations of expected benefits (where applicable, reasons why the benefits did not materialize), communications between provider and recipient, technical documents, service agreements, implementation materials, deliverables, and clearer activity breakdowns. For indirect charge models, the draft also expects support around allocation keys, cost pools, pass-through costs, and the construction of the cost base.

The practical takeaway is that taxpayers will increasingly need more than a generic intercompany services agreement and a schedule of allocated costs. Groups that can demonstrate a clear commercial rationale, preserve contemporaneous evidence of the services actually rendered, and support method selection with a disciplined factual analysis will be better positioned for getting ready for the enhanced documentation requirements.

Conclusion

The consultation draft does not overturn the established role of cost-plus remuneration for routine support services, nor does it create a general preference for CUP or profit split methods. However, it removes presumptions that have shaped service pricing for years. The analysis must now start with accurate delineation. Internal labels should not drive outcomes. The benefit test should be evidenced more carefully. Allocation mechanics and pass-through treatment must be supportable with contemporaneous evidence. Method selection must also follow the economically relevant characteristics of the transaction, aligned more closely with the foundational principles in Chapters I to III.

For MNEs operating procurement hubs, sourcing centers, regional service companies, technology functions, and other commercially significant service platforms, the draft provides an opportunity to revisit whether legacy service models remain the most reliable reflection of arm’s length conditions. In some cases, the answer may remain a conventional cost-plus approach. In others, especially where reliable CUP evidence exists or where the facts reveal an integrated, value-linked, or non-routine contribution, the more appropriate transfer pricing outcome may point in a different direction.

However, it is important to keep in mind that the proposed revisions remain a discussion draft reflecting the views of Working Party 6 delegates and, at this stage, do not represent a consensus that the proposals in the consultation document will be adopted in the updated version of Chapter VII. With the consultation period open until July 22, and a further public consultation expected in November this year, taxpayers should take this window to reflect and suggest ways to refine the Chapter VII guidelines to better reflect business needs and reality, especially in areas like scope of shareholder activities, allocation keys to be adopted, and the treatment of stock or share based compensation.