The Bombay Chartered Accountants Society has requested the OECD to refine transfer pricing guidelines for services between multinational group entities. The submission aims to resolve tax ambiguities regarding shareholder activities, cost allocation, and stock-based compensation. These changes could impact how multinational corporations operating in India calculate and justify cross-border service charges.
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The Bombay Chartered Accountants Society (BCAS) has formally submitted recommendations to the Organisation for Economic Co-operation and Development (OECD) regarding the draft guidance on transfer pricing for services provided between related companies. As global tax authorities increasingly scrutinize how multinational enterprises allocate costs across different jurisdictions, the BCAS is pushing for clearer definitions to reduce potential tax disputes.
Clarifying Chargeable Services and Allocation Methods
A primary focus of the BCAS submission is the distinction between shareholder activities and services that should be charged to subsidiaries. The society argues that current drafts lack the precision needed to separate routine operational support from activities done solely for the benefit of parent company owners, such as investment monitoring. Without clear boundaries, companies often face challenges during tax audits when determining which costs are deductible.
Furthermore, the BCAS recommended that the OECD provide more practical examples for cost allocation. The body suggests that allocation keys, such as headcount for HR services or transaction volumes for accounting, provide a better reflection of benefits received than broad measures like turnover. This recommendation is particularly relevant for Indian subsidiaries of foreign multinationals that often pay for centralized services like IT, legal, and human resources.
Stock-Based Compensation and Service Mark-ups
The treatment of stock-based compensation remains a complex area for multinational tax compliance. The BCAS has requested explicit guidance on whether these costs should be included in the service provider's cost base and how to handle discrepancies in accounting treatments across different countries. Given that many multinational employees receive global stock options, this ambiguity can lead to significant variations in how costs are attributed to Indian operations.
Additionally, the society addressed the guidance on low-value-adding services. While the OECD has traditionally looked at a fixed 5% mark-up for such services, the BCAS has suggested that local safe harbor rates, backed by local economic data, should also be considered. This would allow for more flexibility in jurisdictions where the cost of providing such services may differ from global averages.
The OECD initiated this public consultation on June 1, 2026, and the BCAS finalized its comments on July 22, 2026. The next steps involve the OECD reviewing these submissions as it works toward finalizing the revised international transfer pricing framework. For investors and companies, the final outcome will be crucial, as clearer guidelines could reduce the tax uncertainty that often surrounds cross-border internal service transactions.