Services

Case 1: Differentiation between services and licenses

1. facts of the case

The S Group develops and sells industrial robots. The parent company M holds all relevant patents and provides the subsidiaries A, B and C with technical documentation, training materials and engineering drawings. In addition, a team of engineers at M supports the subsidiaries in the technical implementation and adaptation of the robots to customer requirements. The services have so far been invoiced as "Technical Services" at a cost plus 5%.

Questions

• Is the qualification as a service and the corresponding billing appropriate?
• How could the various service components be differentiated from one another?

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Case 2: Categorization of services

1. facts of the case

The P Group manufactures highly specialized measuring devices. Subsidiary D develops the software for these devices. In addition to the actual software development, D also supports the other group companies with IT support issues and operates the company website. All services are charged at Cost Plus 5%.

Questions

• How could the various services be categorized?
• Is a uniform profit mark-up appropriate for all services provided by D?

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Case 3: Benefit test for group services

1. facts of the case

The R Group introduces a new corporate strategy. The parent company M commissions a renowned strategy consultancy. The costs are to be passed on to all subsidiaries. The new strategy envisages that the Group will focus on the premium segment in future. However, subsidiary E will only serve price-sensitive markets in emerging countries.

Questions

• What criteria should be used to carry out the benefit test?
• Can the consultancy costs also be charged to E?

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Case 4: Billable vs. non-billable services

1. facts of the case

Subsidiary C of the well-known T Group needs a bank loan. C actually has a relatively weak balance sheet and can provide practically no collateral. However, the bank trusts that the well-known T Group would assist its subsidiary if the worst came to the worst and therefore waives the collateral actually required even without a formal guarantee and grants C the loan at the advantageous interest rate of 4% instead of the 6% actually due.

The parent company M of the T Group learns from an employee of C that there have been some irregularities at C in the past year and that various control processes in the financial area are apparently not being adhered to as M had intended. For this reason, M decides to set up an internal audit department to ensure that in future everything at subsidiaries A, B and C runs as M envisages.

Questions

• M would like to invoice C for the difference in interest that C receives as a result of M's presumed support. To what extent can M collect this interest difference for itself?
• M wonders in what proportion the costs for the Internal Audit department can be allocated to the subsidiaries, whose behavior was the reason for setting up the department.

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Case 5: Transfer pricing method for services provided by the finance department

1. facts of the case

The T-Group provides various services centrally for its subsidiaries through its finance department. The T-Group would like to charge the subsidiaries as much as possible for these services. Recently, the parent company M commissioned an external service provider for various consulting services in the financial area - an average hourly rate of CHF 200 was agreed for these services. According to M, the services are essentially comparable to the services provided internally for the subsidiaries.

Questions

• Can M also use the hourly rate of CHF 200 agreed with the external service provider to charge for the services of the internal finance department?
• What are the pros and cons of using an hourly rate of CHF 200?
• What alternatives are there for offsetting?

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Case 6: Charging customers for services

1. facts of the case

The T Group sells machines to customers via its subsidiaries. Subsidiary C also provides services to customers in this context. Although services that relate to special digital sensors in the machines and then provide customers with various information in dashboards are included in C's general service contracts with its customers, they are only provided by the parent company M, as this is the only company that employs the appropriately qualified personnel. For this reason, internal billing of these services from M to C is required.

Question

• Which transfer pricing method could be appropriate for the services provided by M to C?

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Case 7: Support with customer acquisition

1. facts of the case

The T Group has a central department at M that supports the subsidiaries in customer acquisition. On the one hand, general support services are provided, such as sales training and the general preparation of sales documents. On the other hand, the subsidiaries receive targeted support for larger projects, e.g. through assistance with project costing, dry runs for specific sales meetings, etc.

Questions

• How could the T-Group charge the subsidiaries for sales support services?
• What could it depend on, among other things, whether direct offsetting of benefits is possible?

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Case 8: Settlement of general services in the Group

1. facts of the case

In the parent company M, the T Group also provides a large number of administrative services to the subsidiaries, e.g. in the areas of finance, human resources, IT and legal affairs. As a rule, the employees do not keep detailed time records.

Question

• How can the costs for the services provided to the various beneficiaries be offset?

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Case 9: Contract for general services in the group

1. facts of the case

An intra-group contract is to be drawn up for the general services provided by the parent company M within the T-Group. An initial proposal is relatively short, and the T-Group's legal department, which has the contract on the table for review, is not very enthusiastic, as the contract looks very different from typical service contracts with the T-Group's external customers.

Question

• How do you counter the legal department's objections to the relatively simple draft contract?

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Case 10: Transfer pricing documentation for services

1. facts of the case

The T Group would like to prepare transfer pricing documentation for its subsidiary C, which is based in Germany. This should also cover the intragroup services that the parent company M provides to C. The group would also like to ensure that the subsidiaries are optimally prepared for the next tax audit.

Question

• What aspects need to be considered when preparing transfer pricing documentation?
• What other preparations - in addition to the preparation of transfer pricing documentation - could be recommended for the group?