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7.2.3.5.

Profit mark-up

In determining the arm’s length charge, the service provider should apply a mark-up
to all costs that are not pass-through in nature.28 The mark-up should be determined
using comparable data. However, to reduce the compliance burden on Taxable
Persons, this Guide adopt the simplified approach provided under Chapter VII of the
OECD Transfer Pricing Guidelines, whereby certain low value-adding intra-group
services may be charged out at a cost-plus 5% mark-up without the need for a detailed
benchmarking analysis. In general, low value-adding intra-group services should meet
the following criteria:
• the services are of a supportive nature;
• they are not part of the core business of the MNE Group (i.e. not creating the profit-
earning activities or contributing to economically significant activities of the MNE
Group);
• they do not require the use of unique and valuable intangibles and do not lead to
the creation of unique and valuable intangibles; and
• the services do not involve the assumption or control of substantial or significant
risk by the service provider and do not give rise to the creation of significant risk
for the service provider.
• accordingly, the following activities would not qualify for the safe harbour outlined
in this section:
o services constituting the core business of the MNE Group;
o research and development services;
o manufacturing and production services;
o purchasing activities relating to raw materials or other materials that are used
in the manufacturing or production process;
o sales, marketing and distribution activities;
o financial transactions;
o extraction, exploration, or processing of natural resources;
o insurance and reinsurance; and
o services of corporate senior management.

Below is an illustrative example of services that may be considered low value adding
and thus qualify for the safe harbour.

Example 21: Analysis of low value adding intragroup services

ABC Group operates in the chemicals industry. It provides technical services to third
party customers.

28 Pass-through costs are expenses that are incurred on behalf of service recipients. The exact amount
of the cost is then then passed on to the service recipients without any markup or profit margin
Corporate Tax Guide | Transfer Pricing | CTGTP1 109

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