Inside the OECD’s chapter VII update: Implications for transfer pricing

On 1 June 2026, the OECD released a public consultation document on the revisions to Chapter VII of the OECD transfer pricing guidelines (TPG), which provide guidance on intra-group services.

The main objective of the proposed draft is to ensure alignment between Chapter VII and the foundational principles in Chapters I, II and III of the TPG. The revisions also seek to further enhance clarity and provide practical illustrations through the inclusion of new examples. 

We examine and clarify the key revisions and how they may affect future transfer pricing policy, should they be confirmed. 

One of the main changes in the revised chapter is the formal introduction of a section dedicated to the “accurate delineation” of intra-group services. It emphasises the relevance of a robust functional analysis and the identification of the commercial and financial relations between associated enterprises. 

The chapter now states that the mere existence of a payment labelled as a service fee, or of written service contracts, should not be treated as automatic evidence that intra-group services have been provided de facto; the transaction must be accurately delineated by considering the economically relevant circumstances.

The original Chapter VII often led practitioners to default to cost-plus methods, but the revisions explicitly state that there should be no assumption that service transactions must be priced using a one-sided method. Determinations must now be made only after a thorough functional analysis of the transaction’s economically relevant characteristics.

As a result, if the revision is adopted, businesses will be required to look more closely at intra-group services in relation to their contribution to value creation, rather than assuming they are routine, low-risk, cost-based transactions.

The benefits test – the threshold for determining if a service has been rendered – has also been refined to provide more practical clarity:

• Identifiable and expected benefits – The revisions clarify that a benefit is an economic or commercial value that enhances or maintains a business position. Importantly, the benefit must be identified and reasonably expected at the time of the transaction, even if it is not eventually realised as expected
• Use of multi-year data – If a benefit does not materialise, tax administrations are now encouraged to evaluate multi-year data to determine if the benefit was truly expected at the outset or if the activity consistently fails to deliver value
• Loss-making service recipients – Such instances do not provide grounds to conclude that no intra-group service has been rendered

The revisions place greater emphasis on clearly articulating and supporting the expected benefits of intra-group services at the outset, with an increased focus on how those expectations align with outcomes over time. As such, businesses should strengthen how they evidence intra-group service benefits, moving beyond high-level narratives to clear, contemporaneous support.

The guidance on activities that do not qualify as intra-group services has been expanded with more granular details. It introduces a broader and clearer set of examples of shareholder activities at paragraph 7.26. 

At the same time, the revision clarifies the boundary between stewardship and services, noting that, where an activity also provides a genuine benefit to a subsidiary, such as improving financial performance through training or capital allocation support, it may still constitute a chargeable service. Additionally, the updated guidance suggests a more nuanced, case-by-case approach to duplication, focusing on the nature, goals, scope and customisation of the activity.

Businesses will need to adopt a more detailed and structured approach to distinguishing chargeable services from shareholder and duplicative activities, with greater emphasis on the specific facts and commercial rationale of each activity. 

Direct and indirect-charge approaches continue to be recognised, and the revisions provide additional guidance on their application. The OECD is also seeking feedback on the appropriate use of allocation keys.

A major update is the explicit recognition that the profit split method may be the most appropriate method for services that involve unique and valuable contributions, highly integrated operations or the shared assumption of economically significant risks. 

Separately, the revisions provide additional logic for when a mark-up is inappropriate. For intermediaries acting only as agents, the mark-up should be applied only to the agency-related costs, not the underlying service costs.

Additionally, the treatment of stock or share-based compensation in the cost base is a new focus area for which the OECD is specifically seeking stakeholder feedback.

The revisions suggest a more flexible approach to pricing intra-group services, with greater recognition that, in certain cases, methods beyond traditional cost-based approaches may be appropriate. 

Businesses should review current service fee arrangements to assess whether alternative, non-cost base approaches might better reflect contributions to their value chains.

The revised chapter includes a new Section D that supplements the general documentation guidance in Chapter V. Multi-national enterprises (MNEs) are now expected to maintain specific contemporaneous evidence to support the benefit test, such as explanations of expected benefits and technical documentation, like project presentations and reports. Taxpayers must justify the selected allocation keys and provide detailed calculations showing how those keys were applied to the cost pools.

In practice, these changes suggest a more formalised approach to documenting intra-group services, particularly in relation to benefit analysis and cost allocation methodologies. This might be considered a continuation of the enhanced documentation requirements facing multi-national enterprises that we have seen over the last few years.

Finally, the most visible update is the expansion of Annex I, which now includes 21 examples, up from just a handful in the original version.

These new examples cover a wide range of topics, including:

• Digital security – Centralised cyber risk assessment and system enhancements can constitute chargeable services where benefits are reasonably expected (Example 1)
• Bundled intangibles – Activities already remunerated through another transaction (such as a franchise fee) should not be separately charged (Example 4)
• R&D (routine vs entrepreneurial) – Routine research supports cost-based methods, while autonomous R&D may require a profit split (Example 15)
• Machine learning – Services involving valuable intangibles and data-driven outputs may lack reliable comparables for one-sided methods (Example 16)
• Low mark-up services – Non-low value-adding services (LVAS) may still justify mark-ups below 5%, depending on facts (Example 19)

The OECD is seeking input on the proposed revisions and is planning to hold a public consultation this November.

If you would like to discuss any of the proposed revisions or explore how these changes may impact your existing transfer pricing policies, operating model or approach to documentation, please do not hesitate to get in touch. 

We would be happy to discuss the practical implications in more detail and support you in preparing for potential changes.