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Special case: Cost disbursements (without mark-up)

Frequently observed

  • A discussion topic often raised in transfer pricing audits is the cost base that should be considered for recharging service fees for intercompany services, in application of the Transactional Net Margin Method with the mark-up on operating expenses as Profit Level Indicator.

  • Tax authorities mainly scrutinize Belgian intercompany service providers by taking the position that the mark-up should be applied on the total costs base of the service provider, including costs related to outsourcing.

  • Tax authorities often argue that the mark-ups resulting from benchmarking studies are also computed on the full cost base of the comparable companies and hence they believe that this should also be applied to the intercompany service fee.

Why is this problematic?

  • As a general conclusion/statement for this topic is obviously incorrect and not in line with the OECD TP Guidelines, we do – in most cases – strongly disagree.

  • Facts and circumstances should always be assessed and the OECD TP Guidelines, which state that the answer depends on the extent to which an independent party in comparable circumstances would agree not to earn a mark-up on part of the costs it incurs.

  • The assessment that should be made is: does the intercompany service provider add any value or bear any risk with respect to the outsourced activities? If not, such costs could constitute so-called disbursements or pass-through costs.

  • In case a thorough benchmarking study is presented that was performed in line with the OECD TP Guidelines, the tax authorities should demonstrate that no value is added by the services provider and not just jump to the conclusion that a mark-up should be applied.


  • Recharge costs relating to outsourcing separately from the service fee

  • In case an all-inclusive service fee was charged, have sufficient details on outsourced services to provide justification

  • Have a benchmarking analysis available for key transactions

  • Assure the tax authorities follow procedural aspects and presents sufficient proof to support their statements


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