In practice there are genuine challenges here for taxpayers to navigate, both in terms of managing complex boundary issues and dealing with overseas tax administrations that aggressively challenge deductions for service fees. UK headed multinationals seeking to push central costs out to overseas subsidiaries often face extremely resource intensive audits due to onerous evidential requirements and, in some cases, the overseas tax administration seeks to apply domestic rules which may restrict taxpayers access to relief from economic double taxation under tax treaty Mutual Agreement Procedure (MAP) provisions.
The OECD is seeking to tackle both these problems. It has recognised that improved and expanded guidance is needed in light of the extent of tax audits that relate to the application of the benefits test for intra-group services and is committed to undertaking a revision of Chapter VII of the Transfer Pricing Guidelines. We will be sharing our experience and recommendations with the OECD and Multinational Groups will also have the opportunity to engage with the OECD on this next year.
The OECD is also working on a number of tax certainty initiatives, including updates to the ‘Manual on Effective Mutual Agreement Procedures’, which are seeking to protect taxpayers access to MAP.
There are also challenges around what is proportionate, for example when trying to analyse how to allocate the time of C-Suite and other senior leaders between shareholder costs and management services. KPMG has developed tools that assist multinational groups with gathering this information in an efficient and robust way to ensure audit readiness, and we assist businesses in developing dispute prevention and resolution strategies for cross border intra-group services transactions.