On 1 June, the Organisation for Economic Co-operation and Development (OECD) published a public consultation draft on proposed revisions to Chapter VII of the OECD Transfer Pricing Guidelines - the chapter dealing with intra-group services.

The full public consultation draft is available here.

This is the first significant revision of Chapter VII since its original version in 1995 and the BEPS update in 2017. Intra-group services - and support services in particular - are a very common type of controlled transaction for Latvian companies that form part of a multinational group.

The overall conclusion on the draft is that the underlying principles remain unchanged, but the OECD draft provides valuable clarifications on how they are applied in practice. In practice, this matters. Disputes with the tax administration over services between associated enterprises typically do not arise because the principle itself is unclear. They arise where a company cannot clearly demonstrate what services were actually rendered, who benefited from them, and how the charge was calculated. It is precisely these practical issues that the proposed revised Chapter VII addresses.

What is a public consultation?

Before turning to the analysis of the document, it is important to clarify its status. What the OECD has published is not new guidelines. It is a public consultation draft, in which OECD Working Party No. 6 (WP6) proposes a revised version of Chapter VII of the Transfer Pricing Guidelines (on intra-group services) and invites interested parties to submit their comments by the deadline for comments.

In practice, the public consultation process means that the OECD identifies issues where the existing framework is insufficient, outdated, or inconsistent with the rest of the development of the Transfer Pricing Guidelines, and proposes a possible solution. All interested parties may submit comments on this draft by 22 July 2026, while a public consultation is scheduled to take place in Paris in November 2026. Only after the comments have been considered will WP6 be able to revise the text, and later - if agreement is reached between countries - the relevant revisions could become part of the OECD Guidelines.

The OECD itself also stresses that taxpayers and tax administrations should not rely on this draft as if it were adopted guidelines. For that reason, the points discussed in this article should not be treated as new rules. The aim is to analyse the direction in which the approach to the analysis of intra-group services could develop.

Why is the OECD revising the guidance on intra-group services?

Chapter VII of the OECD Guidelines on services between associated enterprises is widely used in applying transfer pricing and in the practice of tax administrations. However, its current version is relatively short and insufficiently detailed, which leaves room for differing interpretations - on the part of both companies and tax administrations.

In practice, such services are very common - most frequently these are management consulting, IT, accounting, HR, legal, financial, and marketing support functions. However, they may also be of another kind, including high value-adding services. Their analysis is often not straightforward.

We have set out the context. We can now turn to the main question - what exactly the OECD proposes to change and how this may affect Latvian companies. The text of the draft is fairly detailed, with 21 different examples, so this article focuses on the most important points.

The central principle remains the benefit test

A company should pay for an intra-group service only where the relevant activity provides it with value. The fundamental question remains unchanged - whether an independent enterprise in comparable circumstances would have been willing to pay for such an activity.

This principle is nothing new. However, in the 2026 draft it is explained in more detail. It is clarified that the benefit need not be guaranteed - a service may meet the benefit test even if, at the time the activity was performed, the recipient reasonably expected a benefit, even if it did not subsequently materialise.

Nevertheless, the expected benefit must be sufficiently direct and factually possible. It is not enough to assert that the group as a whole derives a benefit. The analysis must identify the specific group company or companies that derive a benefit. This is an important aspect for Latvian subsidiaries that receive services from the group. A general assertion that “the services support the group” is generally not enough. The documentation must explain why the recipient needed the service, what was done, and what benefit was expected to be derived from it.

Shareholder activities explained more precisely

The principle that shareholder activities are not chargeable to subsidiaries is also nothing new. These are understood to be activities that the parent performs and that provide a benefit to the shareholder itself, rather than to a specific subsidiary. In essence, they relate to the parent company’s juridical structure, its reporting and audit requirements, the raising of funds for the acquisition of equity interests and relations with investors, as well as the parent company’s own tax compliance and the corporate governance of the group as a whole.

The OECD retains this principle but explains it more precisely. Shareholder activities are distinguished from broader stewardship or management activities. A parent company may perform activities relating to the management and protection of its investment, yet not every activity of the parent company is automatically a shareholder activity. Where the parent company performs activities that also provide a genuine benefit to subsidiaries, such activities may constitute intra-group services to the subsidiaries.

For example, where a parent company develops a training programme for the whole group that subsidiaries would otherwise have to organise for themselves, it may meet the benefit test. But there is an important practical point: even where a centralised activity benefits several group companies, the portion that benefits only the service provider itself or the shareholder must be excluded from the common cost base.

Duplication of functions and incidental benefits addressed more practically

Where one group company duplicates a function that the recipient already performs for itself, it is generally considered that no service is rendered. Likewise, a company is not to be regarded as a service recipient merely because it incidentally derives a benefit from belonging to the group.

In the draft document itself, this principle is examined in more detail, clarifying that an overlap of functions does not always amount to actual duplication. A temporary overlap of functions may be justified, for example during a reorganisation; equally, regulatory requirements may provide that similar compliance or risk-management functions must be performed at both the local and the group level. Therefore, the decisive factor is not whether the activity carries the same label - “marketing”, “compliance”, or “management” - but whether their nature, goals, scope, and actual content coincide.

This aspect is relevant in practice. For example, many local companies already have their own accounting, HR, legal, or management functions while also making payments for similar support at the group level. In such cases, the documentation must substantiate whether the intra-group service supplements the local activity, interacts with it, or differs from it. Otherwise there is a risk that the SRS could challenge the payment as duplicative.

Direct and indirect charging: greater emphasis on the logic of allocation

The current TP Guidelines permit both direct and indirect charging. Direct charging is preferable where a specific service can be clearly linked to a specific recipient. Indirect charging is permissible where a service benefits several group companies and tracing each benefit separately would be impractical or disproportionate.

In the draft document itself, the OECD explains this principle more broadly, providing more specific guidance on when each approach is appropriate. Where a service can be attributed to a single recipient - for example, the upgrade of an IT system for a particular company - a direct-charge approach is generally to be used. Where a service is centralised and benefits several companies - for example, cloud infrastructure intended for the whole group or regional marketing support - an indirect-charge approach using appropriate allocation mechanisms may be more appropriate.

The draft places emphasis on the appropriateness of allocation mechanisms. The mechanism - the specific allocation key - must reflect the expected benefit and the underlying need for the service, and it must be measurable, verifiable, and easy to administer. Turnover is sometimes suitable, but not always. For HR-related services, headcount may be more appropriate; for IT services, the number of users; for fleet management, the number of vehicles; and for certain accounting services, the number of transactions.

In practice, an allocation mechanism is often chosen without explaining in any detail why it reflects the benefit derived. The draft indicates that, going forward, this may not be enough: the taxpayer should be able to explain why the chosen allocation key is appropriate for the specific service and why it does not materially distort the allocation of costs among group companies.

Pass-through costs and the application of a mark-up

Closely linked to the allocation of costs is the question of whether a mark-up should be applied to particular costs at all. The draft develops this aspect separately and distinguishes costs that are passed through without a mark-up (pass-through costs) from costs to which a mark-up is applied.

In practice, the distinction rests on whether the service provider adds value or merely acts as a paying entity. Where a company is in fact merely the payer of expenses, and the recipient would have incurred those costs directly itself, a mark-up is not justified. Conversely, where the provider performs some function and adds value, a mark-up on that added value may be appropriate.

In the draft Chapter VII, the OECD highlights the position of an intermediary or agent. Where an associated enterprise acts only as an intermediary or agent in the provision of a service, the mark-up applies to the agency function itself - that is, to the costs of the intermediary activity - rather than to the amount of the passed-on service or purchased resource.

In the context of cost allocation, this is of practical significance. In centralised models, where one group entity aggregates and passes on substantial third-party costs, applying a single mark-up to the entire amount may lead to remuneration that does not correspond to the scope of the function actually performed. Therefore, pass-through costs should be assessed separately from value-adding costs, documenting which portion of the costs a mark-up has been applied to, and why.

Application of TP methods explained more clearly in a broader context

The existing Chapter VII of the TP Guidelines provides that the pricing of services in accordance with the arm’s length principle must follow the general transfer pricing methods set out in Chapters I, II, and III of the Guidelines. The 2026 OECD draft makes this connection clearer. It addresses the application of the transfer pricing methods to intra-group services and emphasises that the chosen method depends on the accurate delineation of the transaction.

A key emphasis is that cost-based methods (cost plus or the TNMM) should not be treated as the default choice for intra-group services. For many services these methods will still be appropriate, but the choice must not be made automatically - the nature of the service, its value to the recipient, and the functions performed, assets used, and risks assumed by the service provider must always be taken into account. Where a service is part of the core business, involves a unique and valuable contribution, or creates significant value, a simple cost-plus approach may not be sufficient. In such situations - for example, where both parties to the transaction make a unique and valuable contribution, their operations are highly integrated, or they assume significant related risks - the profit split method may be more appropriate.

Documentation - more practical and evidence-based

The proposed section of the draft on documentation is a good, practical addition. To date - in Chapter VII of the 2022 Guidelines - the explanations on documentation related mainly to low value-adding services, whereas the 2026 draft provides broader guidance on documentation for intra-group services in general.

The draft does not prescribe a mandatory checklist of actions to take or of documents, but it clearly indicates what evidence may be useful. This includes an explanation of the expected benefit, correspondence between the service provider and the recipient, service agreements, meeting materials, project documents, deliverables, reports, advice, IT tickets, the breakdown of costs, allocation calculations, and source documents substantiating the cost base.

The practical message is clear: invoices and contracts alone are not enough. A service agreement may indicate that a service was intended, but in itself it does not prove that the service was actually rendered and that the recipient derived a benefit from it (or at least reasonably expected one). For that reason, a company must maintain contemporaneous evidence demonstrating the actual provision and use of the service.

Considerations on low value-adding services remain largely unchanged

One area where the OECD clearly does not propose significant changes is the simplified approach for low value-adding intra-group services. The existing approach is largely carried over. These are support services that are not part of the core business, do not involve unique and valuable intangibles, and are not associated with significant risks. The simplified approach still allows a 5% mark-up to be applied without a comparability study, subject to the relevant conditions and documentation requirements.

This is important, because many of the everyday services received by Latvian companies fall into this category: accounting support, HR administration, IT support, general legal support, and similar administrative services. However, the simplified approach should not be used excessively. Services that are associated with significant risk, use unique intangibles, or create high value do not qualify merely because they are labelled “support services”.

The new draft also retains the idea that the benefit test for low value-adding services may be applied by categories of services rather than for each individual activity. This is practical and reduces the administrative burden. Nevertheless, the taxpayer must document in detail the categories of services, the beneficiaries, the expected benefits, the cost pool, the allocation keys, and the mark-up.

Three questions that remain open

The draft includes three questions on which the OECD specifically requests comments.

The first concerns shareholder activities. The OECD asks whether the existing rules are sufficiently clear in practice and what exactly should be attributed to ancillary activities to the corporate governance of the group. This is an important question. In practice, the argument about “shareholder activities” is used fairly often to deny management fees. A clearer and narrower definition with more examples would be useful for taxpayers.

The second concerns the cost allocation mechanism - the allocation keys. The OECD asks whether further guidance is needed and which keys are used in practice. A practical matrix would be useful - but rather as recommendations and examples than as strict rules.

The third concerns stock-based compensation. The OECD asks whether difficulties arise in practice with timing, accounting, and valuation issues. Here, further guidance is genuinely needed: when such compensation should be included in the cost base, whether to value it at the time of grant or by accounting cost, whether adjustments are required, and whether a mark-up should be applied to it.

How much of this will end up in the final TP Guidelines text

OECD consultation drafts are rarely adopted unchanged - but their direction is usually preserved. The financial transactions draft (July 2018) became Chapter X in February 2020, and the final text differed from the draft in detail, but the underlying principles remained unchanged.

From this, a practical conclusion follows for this draft as well. The main direction is most likely to be preserved - the emphasis on the economic substance of the transaction, accurate delineation of the transaction before the benefit test, the correct application of the transfer pricing methods, and evidence-based documentation. This is also confirmed by the OECD itself, which stresses that with this draft it does not change the general principles, but only modernises them and explains them in more detail.

The timeline is to be assessed separately. Given experience with OECD processes, realistically the final text in the TP Guidelines might appear only in 2027-2028 or even later. This does not, however, diminish the key point: in practice, tax administrations and auditors begin to rely on the logic of such a document well before its formal adoption, so its reasoning must be taken into account already now.

What does this mean in Latvia?

The OECD Guidelines are an international transfer pricing standard agreed by OECD member states that is to be applied by multinational enterprises and tax administrations. Their application is permissible under Latvian legislation.

Although the Guidelines are not directly applicable, the Latvian regulatory framework provides that the SRS may use them, and in practice the SRS (as well as the courts) does so. The OECD Guidelines therefore serve in Latvia as an important basis for interpretation for both companies and the tax administration. As the Guidelines change, so too does the basis on which both companies and the SRS ground their positions.

At the same time, it must be stressed that for now this is still a draft, not an effective version of the Guidelines. The SRS cannot rely on it directly as a binding standard, while the taxpayer can use it rather as an argument about the possible direction in which the framework may develop than as a directly applicable rule. What matters, however, is that the conclusions set out in the draft are logical, and many issues are already being examined in practice exactly as described in the draft Guidelines. Moreover, tax administrations and auditors tend to rely on the logic of such documents well before their formal adoption, so the reasoning in the draft must be taken into account already now.

In practice, this creates both risks and opportunities. The risks could be that the SRS, in assessing intra-group services, may look increasingly critically at the automatic application of the cost plus method, the content of the services, possible transfers of intangibles, and the allocation of shareholder costs. The opportunities, in turn, arise from the greater certainty that the draft introduces into the assessment of intra-group services. Clearer criteria and more detailed examples allow the taxpayer to better anticipate the likely approach of the SRS in advance and to prepare its position in a more targeted way. One such clarification is the benefit test: the draft confirms that a service is regarded as rendered once the benefit was reasonably expected at the time of its receipt, even if it does not subsequently materialise. This provides a more solid basis for defence in situations where a particular service has not produced the expected result.

What to do already now?

Most of the conclusions set out in the draft are not new - over time they have taken root in practice and already today form part of good transfer pricing practice. The OECD draft simply makes them more topical and increases certainty for taxpayers. In Latvia this is important already now, as the first deadline for filing the CTR is approaching in December.

In practical terms, Latvian companies would be advised to:

  • review intra-group service transactions and specifically identify what activity exactly is being paid for;
  • assess whether the services are, in substance, genuinely services rather than shareholder activities, general group management, or duplicative functions;
  • check whether each category of services has a clearly identifiable benefit for the Latvian company;
  • assess whether the allocation keys used genuinely reflect the expected benefit;
  • separately identify pass-through costs to which no mark-up is to be applied;
  • ensure that the cost plus or TNMM method is not applied automatically, without assessing the content of the transaction;
  • gather evidence in good time - emails, meeting materials, reports, deliverables, IT tickets, project documents, and cost calculations.

The practical conclusion is as follows: in the context of intra-group services, a contract and an invoice are not enough. A company must be able to demonstrate the actual content of the service, the recipient’s need, the expected benefit, and the logic behind the calculation of the charge. The more clearly this is prepared already at the time the transaction is carried out, the lower the risk that intra-group service charges will later be challenged in a transfer pricing audit.