Transfer pricing has long been one of the most scrutinised areas of international taxation, and few topics generate as much controversy as intra-group services. Questions around whether a service was actually provided, whether it created value for the recipient, and how it should be priced have led to countless disputes between taxpayers and tax authorities across the world.
Now, the Organisation for Economic Co-operation and Development (“OECD”) has proposed the most significant overhaul of its guidance on intra-group services in more than a decade. Through its 2026 Public Consultation Document (“PCD”), the OECD is proposing extensive revisions to Chapter VII of the OECD Transfer Pricing Guidelines, fundamentally reshaping how multinational groups identify, document, price and defend intra-group service arrangements.
For multinational enterprises operating in Africa and beyond, the proposed changes signal a clear shift towards greater transparency, more rigorous documentation requirements and significantly enhanced scrutiny of service transactions.
Why Chapter VII Matters
Intra-group services are at the heart of modern multinational businesses. Centralised management functions, treasury support, information technology (“IT”) platforms, human resources, procurement, legal services, marketing support and shared service centres frequently operate across multiple jurisdictions and entities. While these arrangements are commercially commonplace, they have historically been a major source of transfer pricing disputes because tax authorities often question:
- Whether a genuine service was actually provided;
- Whether the recipient received a measurable benefit;
- Whether charges are duplicative;
- Whether costs have been allocated appropriately; and
- Whether the pricing reflects arm’s length conditions.
The OECD’s proposed revisions aim to provide greater clarity on these issues while simultaneously giving tax authorities more tools to challenge arrangements that lack substance.
From Three Examples to Twenty-One
One of the most striking changes is the dramatic expansion of practical examples. The current 2022 Guidelines contain only a handful of examples dealing with intra-group services. The proposed 2026 framework introduces 21 detailed illustrative examples, covering a wide range of practical scenarios, including:
- Artificial intelligence and digital services;
- Research and development support;
- Advertising and marketing arrangements;
- Shared service centres;
- Shareholder activities;
- Duplicative services;
- Pass-through costs;
- Cost allocation methodologies;
- Construction and engineering support;
- Internal capability versus outsourced service analysis; and
- Profit split applications for complex service arrangements.
This expanded guidance is intended to reduce uncertainty and promote greater consistency in transfer pricing outcomes across jurisdictions. For taxpayers, however, it also means that tax authorities will have significantly more OECD-supported examples to rely upon when reviewing service arrangements.
A New Focus on Accurate Delineation
One of the most important additions is the introduction of a dedicated Accurate Delineation section. Historically, many taxpayers approached intra-group services by first asking whether a benefit had been received. The OECD is now proposing a different sequence. Before considering benefits or pricing, taxpayers must first accurately identify and delineate the transaction itself. This means understanding:
- What service is actually being performed;
- Who performs it;
- Who controls the activity;
- Which entity bears the risks;
- Which assets are used; and
- What the true commercial reality of the arrangement is.
This aligns Chapter VII more closely with the broader OECD transfer pricing framework and reinforces the substance-over-form approach that tax authorities increasingly favour. For multinational groups, this may require revisiting existing service agreements that have historically relied on broad or generic descriptions of support activities.
The Benefit Test Becomes Far More Sophisticated
Perhaps the most significant substantive development is the expansion of the benefit test. The existing guidance deals with this concept relatively briefly. The proposed framework introduces a much more detailed four-part analysis focusing on:
1. Temporal Scope
Was the benefit expected at the time the service was provided? The OECD emphasises that outcomes should not be judged solely with hindsight.
2. Directness
Is there a sufficiently direct link between the activity performed and the benefit received?
3. Reasonable Expectation Standard
Would an independent enterprise reasonably expect to pay for the service under comparable circumstances?
4. Commercial Rationality
Does the arrangement make commercial sense from the recipient’s perspective?
Importantly, the OECD also confirms that a service may still satisfy the benefit test even if it ultimately fails to generate profits or expected results. This clarification may assist taxpayers facing challenges based purely on poor commercial outcomes.
Shareholder Activities Receive Expanded Guidance
One of the most contentious areas in transfer pricing involves distinguishing between shareholder activities and chargeable services. The proposed revisions substantially expand this guidance. The OECD clarifies that:
- Board and governance activities are not automatically shareholder activities;
- Certain holding company costs may legitimately be allocated;
- Mixed activities may require apportionment; and
- Each activity must be analysed based on its actual purpose and beneficiaries.
This could have significant implications for multinational groups with regional headquarters, holding companies and central management functions. Many historic assumptions regarding non-chargeable shareholder costs may require reconsideration.
Duplicative Services Under the Spotlight
Tax authorities frequently challenge service charges on the basis that the recipient already performs the same activity internally. The OECD acknowledges that duplication does not automatically invalidate a charge. Instead, a case-by-case assessment is required. Legitimate duplication may exist where:
- Additional expertise is required;
- Temporary support is needed;
- Risk management objectives justify the duplication; or
- Regulatory requirements necessitate multiple layers of oversight.
This guidance provides useful support for taxpayers but also raises the evidentiary threshold needed to justify such arrangements.
Pass-Through Costs: New Standalone Guidance
The proposed Chapter VII introduces dedicated guidance on pass-through costs. Under the revised approach, where an entity merely acts as an intermediary and does not add significant value, costs may be recharged without a mark-up. However, taxpayers will need to demonstrate clearly that:
- The intermediary performs no significant functions;
- No valuable assets are employed; and
- No meaningful risks are assumed.
This is likely to become an area of increased scrutiny during transfer pricing audits.
Profit Split Enters the Services Arena
Historically, most intra-group services have been priced using cost-plus methodologies. The OECD now explicitly recognises circumstances where the Profit Split Method may be more appropriate. This may arise where:
- Multiple parties contribute unique and valuable contributions;
- Functions are highly integrated;
- Significant risks are shared; or
- Traditional one-sided methods fail to capture economic reality.
The change reflects the growing complexity of modern multinational operating models, particularly in technology, financial services and intellectual property-driven businesses.
Documentation Requirements Increase Significantly
The proposed revisions introduce an entirely new documentation section. While not creating a formal checklist, the OECD provides extensive guidance on the documentation taxpayers should maintain, including:
- Service agreements;
- Cost allocation methodologies;
- Benefit analyses;
- Communication records;
- Technical reports;
- Deliverables and work products;
- Cost base calculations;
- Invoices and supporting evidence; and
- Contemporaneous documentation demonstrating commercial rationale.
The clear message is that simply having an intercompany agreement will no longer be sufficient. Taxpayers will need to demonstrate both the provision of services and the value received through robust evidence.
Low-Value Adding Services Remain Largely Unchanged
One area where there is relative stability is Low-Value Adding Services (LVAS). The familiar simplified approach remains intact, including:
- The 5% mark-up;
- Simplified documentation requirements; and
- The general framework for routine support services.
However, the OECD reiterates that the simplified approach should not automatically be used as a benchmark for other service categories.
What Does This Mean for Africa?
The proposed changes are particularly relevant for Africa. Across the continent, revenue authorities are investing heavily in transfer pricing enforcement capabilities. Countries including South Africa, Kenya, Nigeria, Tanzania, Rwanda, Uganda and Zambia have all strengthened their transfer pricing frameworks in recent years. Many African tax authorities rely heavily on OECD guidance when conducting audits and assessing transfer pricing risks.
As a result, these proposed revisions are likely to influence audit approaches across the continent long before they become formally embedded in local legislation. Multinational groups with African operations should therefore view these developments as an early warning of the direction transfer pricing enforcement is heading.
Looking Ahead
The OECD consultation remains open, but the overall direction is unmistakable. Tax authorities are moving beyond basic questions of pricing and increasingly focusing on whether services genuinely exist, whether they provide measurable value and whether taxpayers can substantiate their positions with compelling evidence.
For multinational groups, the days of relying on generic management service agreements and high-level cost allocations are rapidly disappearing.
The future of transfer pricing compliance will be built on detailed functional analysis, robust benefit assessments, clear delineation of transactions and comprehensive documentation. Those who prepare early will be significantly better positioned when the revised guidance ultimately becomes the new global standard.
Need to Review Your Intra-Group Service Arrangements?
With transfer pricing scrutiny increasing across Africa and globally, now is the ideal time to review your intra-group service models, benefit analyses, documentation frameworks and cost allocation methodologies. The Regan van Rooy transfer pricing team assists multinational groups with transfer pricing policy design, documentation, benchmarking studies, audit defence and dispute resolution across Africa and beyond. Contact our team to discuss how these proposed OECD changes may affect your group and how to strengthen your transfer pricing position before tax authorities come knocking.
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