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Transfer pricing—charging methods for services

According to the OECD Guidelines¹, there are two main issues when analysing intra-group services:

1. Ìý

   •ÌýÌýÌýÌý whether an intra-group service that should be charged for has been provided (see B4.146), and

2. Ìý

   •ÌýÌýÌýÌý what is the arm's length charge for that service, which is outlined below

Chapter VII of the OECD Guidelines deals specifically with the issue of charging for intra-group services between related parties.

The guidelines suggest two main methods — the direct charge method and the indirect charge method².

A direct charge is one levied to a particular affiliate for a particular service, whilst an indirect charge is applied through other means, usually using various allocation methods. A direct charge has the advantage of providing greater transparency and provides further documentary evidence as to the validity of the charges. The amount to be charged can be ascertained from time sheets, charges to an account or job code, etc.

An indirect charge is made where for some reason, such as the administrative