OECD Chapter VII: Major Updates to Intra-Group Services
On 1 June 2026, the OECD released a public consultation document proposing updates to Chapter VII of the OECD Transfer Pricing Guidelines. Chapter VII deals with how intra-group services — services provided between companies within the same multinational group — should be priced for transfer pricing purposes.
These are the most significant proposed changes to this chapter since 2015, when the OECD's BEPS Project introduced a simplified pricing regime for routine, low value-adding services within a group.
The consultation is open to all interested stakeholders — including businesses, tax advisers, and industry bodies — who have until 22 July 2026 to submit written comments. A public discussion will follow in November 2026 at the OECD Conference Centre in Paris, after which the OECD is expected to work towards finalising the revised text.
Rationale Behind the Proposed Revisions to Chapter VII
The original Chapter VII dates to 1996 and remained largely unchanged for nearly two decades. In the meantime, the BEPS Project brought significant updates to other parts of the Transfer Pricing Guidelines — particularly Chapters I, II, and VI — introducing a more detailed and structured approach to analysing transactions based on functions performed, risks assumed, and value created.
Chapter VII was not updated in the same way, and over time its guidance became harder to apply in a manner consistent with the rest of the Guidelines. The benefit test and the pricing framework for intra-group services, in particular, were increasingly difficult to reconcile with the more developed guidance now available for intangibles (Chapter VI) and financial transactions (Chapter X).
The proposed revisions aim to bring Chapter VII in line with these broader developments — improving consistency, adding clarity, and introducing practical examples to assist both taxpayers and tax administrations. Importantly, the OECD has been clear that these updates are not intended to change the fundamental principles that govern how intra-group services are analysed for transfer pricing purposes. The chapter is being updated and modernised, not fundamentally rewritten.
Five Changes That Matter
1. Accurate Delineation Comes First
The most structurally significant change is a reordering of the analytical sequence. Under the current Chapter VII, the benefit test is applied at the outset. The revised chapter inverts this: taxpayers must first accurately delineate the transaction — analysing commercial and financial relations between the parties, contractual terms, conduct, and economically relevant characteristics — before asking whether a benefit was conferred.
This brings services within the same analytical discipline now applied to intangibles and financial transactions. Conduct, contractual substance, and the point of decision-making will carry more weight in determining the true character of the arrangement.
2. A Sharper, More Precisely Articulated Benefit Test
The benefit test remains the cornerstone of Chapter VII: a charge for an intra-group service is arm's length only if the recipient would have been willing to pay an independent party for that activity, or would have performed it independently.
A key interpretive clarification addresses a persistent misunderstanding: shareholder activities, duplicative activities, and incidental benefits are not exhaustive or mutually exclusive exceptions to the benefit test. They are examples of situations where the test typically fails. The primary inquiry remains unchanged — does the activity confer qualifying economic or commercial value on the recipient?
The proposed chapter expands guidance on shareholder activities, offering clearer definition and additional examples of governance, compliance monitoring, and oversight functions performed at holding company level — for the shareholder's own interest — and therefore not chargeable to subsidiaries.
3. Interconnected Transactions Get Dedicated Guidance
Modern shared services centres bundle IT infrastructure, HR administration, financial reporting, and legal coordination into single arrangements. Each component may have a different character, different beneficiaries, and a different most appropriate pricing method — yet they are operationally inseparable.
The proposed chapter introduces structured guidance on interconnected transactions: how to determine when services are sufficiently integrated to be analysed as a single arrangement, when they must be delineated and priced separately, and how method selection should respond to that determination. For MNE groups operating shared service centres, this means a bundled arrangement can no longer be priced as a single cost-plus charge without first assessing whether individual components require separate delineation and pricing — a change that will require many groups to revisit how their shared service arrangements are both structured and documented.
4. Cost-Plus Is No Longer the Default
Cost-based methods — the cost-plus method and the LVAIGS mark-up regime — have long been treated in practice as the presumptive methodology for intra-group services. The revised chapter explicitly challenges this. The OECD confirms that cost-based methods should not automatically be regarded as the most appropriate methodology for services.
Where parties perform unique and valuable functions, or assume economically significant risks, more complex methods — including the transactional profit split method — may be appropriate or necessary. Method selection must always reflect the economically relevant characteristics of the arrangement, not administrative convenience. For any MNE group relying on cost-plus as a default for strategic or knowledge-intensive services, this is a direct signal that the position needs to be re-examined.
5. Documentation Gets Its Own Framework
The proposed chapter introduces a dedicated section on evidentiary considerations and documentation, supplementing Chapter V's general documentation requirements. The revised guidance sets out specific types of evidence needed to support an intra-group service charge:
- Proof that the activities were actually performed
- Evidence of the benefit received and why an independent party would have paid for it
- Rationale for the pricing method selected
- Allocation keys and their basis where cost-based charges are used
If adopted as proposed, contemporaneous and specific documentation would become a formal expectation — not merely a best practice.
LVAIGS: Preserved and Unchanged
The existing LVAIGS framework is retained substantially intact. The simplified approach — applicable to support services that are not part of the group's core business and do not rely on unique intangibles — is reproduced with only minor updates to cross-references. The LVAIGS safe harbour remains fit for purpose. The policy focus of the revision is squarely on services that fall outside the LVAIGS perimeter: strategically significant arrangements, value-chain-integrated services, and situations where significant risks are assumed.
What This Means for India, the Gulf, and Southeast Asia
India
India has long been a litigation-intensive environment for intra-group service charges, with tax authorities routinely challenging the reality of services rendered, the quantum of benefit, and the appropriateness of cost-plus pricing for management fees and technical service fees. The revised Chapter VII's emphasis on functional analysis, genuine benefit, and method rigour directly mirrors the scrutiny the Indian Revenue applies. Once finalised, the revised chapter is likely to be cited in ITAT proceedings and APA negotiations.
The Gulf Region
The Gulf — particularly the UAE following corporate tax implementation and Saudi Arabia under ZATCA's expanding transfer pricing framework — presents an increasingly complex environment for management fee structures and shared service arrangements. Saudi Arabia's Transfer Pricing Bylaws, enforced by ZATCA since 2019 and progressively tightened through subsequent guidelines and audit activity, already require detailed functional analysis and contemporaneous documentation for intra-group service charges — placing Saudi-based MNE groups among the more scrutinised in the region. The accurate delineation requirement and the proposed end of cost-plus as a default will directly affect how Gulf shared services structures are documented and defended, and are likely to inform how ZATCA interprets and applies its existing TP framework in the near term.
The Takeaway
The proposed Chapter VII revisions are not cosmetic. They reorder the analytical sequence, tighten the benefit test, end the presumptive status of cost-plus, and introduce documentation expectations that will raise the bar for how intra-group service arrangements are structured and evidenced. For MNE groups with significant cross-border services activity — particularly those relying on management fee structures, shared service centres, or cost-plus default pricing — now is the time to review existing arrangements against the proposed framework, before the final text is adopted.
HexaTP provides transfer pricing advisory services across India, the Gulf, and Malaysia. For guidance on how the proposed Chapter VII revisions may affect your intra-group service arrangements, contact our team.