Why the consultation paper on the revision to Chapter VII of the OECD Transfer Pricing Guidelines matters for African and Middle Eastern groups
Across Africa and the Middle East, one tax issue keeps coming back in audits: management fees and headoffice service charges. Local tax authorities often argue there is “no benefit”, especially when the local entity is lossmaking, and disallow the deduction.
The OECD’s new consultation draft on intragroup services is important because it gives a clearer, more practical framework than the current 2022 Guidelines, particularly for countries that mainly receive services.
1. Lossmaking does not mean “no service”
The draft goes beyond the 2022 Guidelines by clarifying that the mere fact an associated enterprise is loss-making does not, in itself, support a conclusion that no intra-group service has been provided. This position is illustrated in Example 1 of Annex I.
The 2022 OECD TP Guidelines state that losses can be arm’s length, but only in general terms. They do not clearly state, in Chapter VII , that a lossmaking entity can still have received a genuine intragroup service.
So the draft does not change the principle; it removes the ambiguity and gives taxpayers a clear sentence to push back against “you made a loss, so there was no service” arguments.
It also emphasises that what matters is whether there was a reasonable expectation of benefit at the time the service decision was made, even if the benefit is delayed or not fully realised in the short term.
2. Separating shareholder “noise” from genuine support
The paper encourages a clearer distinction between:
• Shareholder activities (for example, investor relations or purely grouplevel strategy), which should not be charged to subsidiaries; and
• Genuine support services (such as IT, risk, treasury, supply chain, sector expertise), which can be charged if they bring a real or reasonably expected commercial benefit.
For African and Middle East groups, this is an opportunity to redesign management fees so that the shareholder element is clearly identified and removed, while the core operational services are documented and easier to defend.
3. A more realistic approach to pricing and documentation
For typical management‑fee and HQ‑support models, where one centre serves many countries, the draft recognises that detailed, transaction‑by‑transaction charging is not always realistic. This is particularly true for African and Middle East groups, where central functions often support many smaller subsidiaries at once. The paper gives clearer guidance on using practical cost allocation keys to spread central costs, and explains which features those keys should have to reflect expected benefit and minimise disputes with tax authorities.”
For African and Middle East taxpayers who regularly face questions on management fees, this draft offers a helpful new reference point: it addresses benefit, shareholder activity and lossmaking entities in a more direct way than the 2022 Guidelines.