Beyond cost-plus: what the OECD's new approach to intra-group services means for UK taxpayers

On 1 June 2026, the OECD published a consultation document proposing significant revisions to Chapter VII of the OECD Transfer Pricing Guidelines in relation to intra-group services.

The revisions aim to modernise the guidance, better align it with the core transfer pricing principles (Chapters I to III), and provide greater practical clarity through new examples.

UK transfer pricing rules are intrinsically linked to the guidance set out in the OECD Transfer Pricing Guidelines. However, in contrast to the OECD’s principles-focused approach, recent HMRC guidelines are more prescriptive on what HMRC expects transfer pricing policies to look like, specifically when it comes to high-value services. This potentially creates an area of tension on a topic where the same facts have a wide scope for being interpreted differently by different parties.

The core principles remain, but are expanded upon

The fundamental architecture of the guidance is unchanged.

The benefit test, which asks whether a recipient would be willing to pay for the service or perform it in-house, remains central to the analysis. What has changed is the depth of elaboration. 

The guidance emphasises that the benefit test and the determination of arm’s length remuneration are separate analyses and should not be conflated. This distinction has significant practical implications, particularly where tax authorities seek to deny a deduction for intra-group service costs on the basis that the pricing is excessive (for example, when the recipient has made a loss), when the correct approach should be to address the existence of the service and the quantum of the charge as two discrete questions.

The benefit test has also been expanded to make clear that the benefit need only be reasonably expected at the time of the transaction, even if it does not ultimately materialise, or is realised over a number of years. 

The simplified regime for low value-adding intra-group services (LVAS), a popular practical measure that has helped many taxpayers streamline compliance since it was introduced in 2015, remains largely the same. However, the guidance reminds taxpayers that the 5% mark-up applies only to LVAS. It should not be used as a benchmark for pricing other service arrangements.

The most visible change is the expansion of practical examples. The 2022 guidelines contain only a handful; the consultation document includes 21 detailed scenarios in an annex, covering cyber security, marketing, shareholder activities, duplication of services, and different transfer pricing methods.

Evidencing the benefit: best practice documentation

In addition to the new worked examples, what comes through strongly in the revised guidance is the emphasis on evidencing that services have been provided and that they deliver a tangible benefit.

A new documentation section supplements Chapter V of the OECD guidelines (which covers guidance on preparing transfer pricing documentation), setting out the types of contemporaneous evidence useful for demonstrating the benefit test has been met, such as explanations of expected benefits, provider-recipient communications, service agreements, and deliverables such as reports, advice, or IT tickets.

The guidance now makes it clear that simply labelling a payment as a “service fee” or having a written contract is not, by itself, evidence that services have been rendered. Equally, the absence of payments or contracts should not automatically mean no intra-group service occurred.

Having such documentary support is more important than ever as many tax authorities are increasingly requesting more robust evidence that services were provided before allowing a deduction for service costs. 

Documentation should be proportionate to the materiality and nature of the services, but the messaging is clearly that taxpayers should be building a robust evidence base as a matter of course.

Higher value-adding services: potential tensions with HMRC guidance?

More substantive guidance on higher value-adding services is notably absent.

For high-value services, the guidance simply directs taxpayers back to Chapters I to III, presumably on the basis that the existing framework of functional analysis, comparability assessment and method selection is appropriate for these more complex arrangements.

That said, the revised guidance does emphasise that certain service arrangements may be more appropriately priced via a two-sided method such as a profit split, and that taxpayers should not assume all services default to cost-plus.

The only meaningful expansion here is the inclusion of examples illustrating when a profit split may apply (see Examples 13 and 15B). These involve pharmaceutical R&D collaborations and more clear-cut scenarios of where both parties make unique contributions and operations are highly integrated. For arrangements commonly seen in practice, where services are highly value-adding but do not meet strict profit-split criteria, the guidance offers little on what an appropriate return would be. 

From a UK perspective, expectations around the pricing of value-generating services are already considerably more prescriptive than the OECD's proposed guidance. In particular, HMRC's 2024 Guidelines for Compliance (Indicators of transfer pricing policy design risk (part 3)) flag transfer pricing for "above market" and value-driving intra-group services priced on a cost-plus basis as a high-risk indicator.

HMRC's position is that for above-market services, a sales-based or profit-based reward may represent a more appropriate method. In practice, this means that services generating significant value (for example, marketing services that drive regional or global sales) should be linked to sales performance rather than simply remunerated on a mark-up on costs. This presumption is a different starting point than the OECD’s principles-up approach.

The adoption of AI and the provision of AI-related “services”, including potential contributions to the creation of intellectual property (IP), are evolving areas for many businesses. As such, the limited guidance in the OECD consultation documentation is understandable. Example 16 is currently the only AI-related scenario in which the contribution of data for machine learning is considered and concludes that the development, use and contribution of IP means a cost-plus would not be appropriate.

Shareholder activities and costs retained in the UK

With the UK serving as the headquarters or significant holding company location for many multinational groups, the retention of shareholder costs in the UK cost base has long been an area of focus for UK tax authorities.

The revised guidance continues to distinguish between shareholder activities (which cannot be charged out) and stewardship or service activities that satisfy the benefit test. The guidance further highlights that just because an activity is being performed by senior management, including the CEO, does not automatically make it a shareholder activity and may still be a service for which remuneration is required. There is now a much greater focus to consider whether benefits from shareholder activities are incidental or more directly felt by group entities.

UK groups must continue to carefully define, identify, manage, and justify why shareholder-related costs should be retained in the UK.

What does this mean for taxpayers?

The consultation document provides a timely reminder for groups to review their intra-group service transactions and, in particular, test whether they have documentation and evidence to demonstrate when a service is provided and what the intended benefits are for the recipient if ever challenged by a tax authority.

For those wishing to provide feedback on the guidance, the consultation is open until 22 July 2026, with a public hearing planned for November 2026. Please do get in touch with our team if you would like assistance in preparing comments or submissions to the OECD.