Intra-Group Services or Management Services Intra-group services (or management services) were the first type of transaction where I met transfer pricing, 18 years ago, and remain one of the most common areas that we deal with in practice. It is not surprising that intra-group services are common in transfer pricing practice. Most groups have some element of centralisation or sharing of services. This can arise for pure cost reasons; it is often cheaper to share the costs of a central department than for each group company to source services externally. In other cases it is a matter of resource availability; for example a particularly experienced individual based in one group company may provide their advice or assistance for the benefit of other group companies. For all of the above, where group companies share costs, or incur costs on behalf of another group company, transfer pricing rules apply. Even where UK companies benefit from the SME exemption, their overseas related companies are unlikely to have any exemption from arm's length pricing, and overseas compliance must be ensured when setting up recharges. The first step is to identify the services being provided intra-group. You may be surprised that this is usually one of the most difficult and time consuming steps. In a modern international business, people are usually busy doing what needs to be done to drive the business forward. Thankfully, they don't stop to think about legal entities and who their employment contract is with. In fact many businesses now are run on divisional or product-led lines, and the legal entity concept is only relevant to the accountants. So we have to start to look at the business in a different way, and work out who is doing what for whom. Often this issue comes to a head when people start to think about profit-based bonuses; if the overseas businesses are not paying for the services they receive, not only do they get a free benefit, the managers will get a higher bonus on top. This issue can concentrate minds powerfully! Is the service valuable? My experience is that people providing services always rate their work highly valuable; the recipients somewhat less so. Perhaps this is commercial practice in operation but it is unlikely that these discussions can ever really be "arm's length". A parent company may carry out activities for its subsidiaries for a number of reasons; subsidiaries are rarely able to say no to receiving these activities. The ultimate control by the parent means that the subsidiary can only ever have limited negotiating power.

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