1 Define the service

The first step is to define the nature and scope of the service provided by one entity to another within the MNE group. You need to consider the type, quality, and quantity of the service, as well as the business purpose and value added by the service. You also need to determine whether the service is low value-adding or high value-adding, as this may affect the transfer pricing method and documentation requirements. A low value-adding service is one that is supportive, routine, and does not involve significant risks or intangibles, such as payroll or accounting. A high value-adding service is one that is core, strategic, and involves significant risks or intangibles, such as research and development or branding.

2 Conduct a functional analysis

The second step is to conduct a functional analysis of the service provider and the service recipient, as well as any other relevant entities within the MNE group. A functional analysis is a systematic examination of the functions performed, assets used, and risks assumed by each entity involved in the intra-group service. The functional analysis helps to identify the benefits and costs of the service, as well as the comparability factors that affect the arm's length price. Some of the comparability factors are the contractual terms, the economic circumstances, the business strategies, and the market conditions.

3 Apply the benefit test

The third step is to apply the benefit test to the service recipient, which is a key criterion for determining whether an intra-group service has been provided and whether a charge is appropriate. The benefit test requires that the service recipient would be willing to pay for the service if it were offered by an independent party, or would perform the service itself in the absence of the intra-group service. The benefit test also implies that the service provider should not charge for services that are duplicative, shareholder activities, or stewardship functions. A duplicative service is one that the service recipient already performs or obtains from another source. A shareholder activity is one that benefits the MNE group as a whole, but not the individual entities, such as corporate governance or compliance. A stewardship function is one that benefits the service provider, but not the service recipient, such as monitoring or controlling.

5 Apply the selected method

The fifth step is to apply the selected transfer pricing method to the intra-group service, using reliable data and information from comparable uncontrolled services. You need to make appropriate adjustments to account for any differences that may affect the comparability of the prices or margins, such as the quality, quantity, timing, or location of the service. You also need to document the sources, assumptions, calculations, and results of your transfer pricing analysis, as well as any changes or revisions that may occur over time.

6 Review and monitor

The sixth step is to review and monitor your transfer pricing policy and practice for intra-group services on a regular basis, to ensure that they are consistent with the arm's length principle and comply with the relevant tax laws and regulations. You need to keep track of any changes in the nature and scope of the service, the functional analysis, the benefit test, the transfer pricing method, or the comparability factors that may affect your transfer pricing outcomes. You also need to update your transfer pricing documentation and report any significant transactions or adjustments to the tax authorities.