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Form C YA 2022 - Characterisation of Entities for Transfer Pricing Purposes: Service Activities

Updated: Nov 8, 2022

Recent changes were made to Form C by the Inland Revenue Board in preparation for the YA 2022. One of the most critical changes is for those businesses participating in transfer pricing arrangements. As a result, the disclosure items have been significantly expanded to cover new areas.

These new areas include stating the characterisation of your company by reference to its functional profile, the business restructuring undertaken by the group during the year, and whether or not your company engages in cash pooling activities, performs any research and development activities or owns any intellectual properties.

Form C Requires Additional Disclosures

The taxpayer is NOW obligated to provide an entity characterisation concerning its business activities, specifically its manufacturing, distribution, and service activities; for instance, whether

  • manufacturing activities are carried out as a toll manufacturer, contract manufacturer, full-fledged manufacturer, or any other form of manufacturing;

  • distribution activities are carried out as a full-fledged distributor, commissionaire distributor, agent distributor, limited risk distributor, licenced distributor or any other form of distribution;

  • service activities are carried out as a management-service provider, IT service provider, treasury or any other service form.

The accurate definition of the entity is critical, and it must be decided based on an analysis of the transfer pricing functions, assets, and risks (FAR).

Definition of Intra-Group Services

The OECD defines an ‘Intra-Group Service’ as:

An activity (e.g. administrative, technical, financial, commercial, etc.) for which an independent enterprise would have been willing to pay or perform for itself.”

The Malaysian Transfer Pricing Guidelines define an ‘Intra-Group Service’ as:

"Intragroup services are services provided by one or more members of a multinational group to benefit the other members.

In general, the types of services that members of a multinational group can provide to each other include, but are not limited to, management services, administrative services, technical and support services, purchasing, marketing and distribution services and other commercial services that typically can be provided concerning the nature of the group's business.

The costs of such services, initially borne by the parent or other service companies within the multinational group, are eventually recovered from other associated persons through intragroup arrangements."

Challenges for Pricing Intra-Group Services

Throughout business history, intra-group services have typically been priced using a standard method, i.e., remuneration determined by the (net) cost of providing the service, and typically with a relatively modest markup of only 2-5%.

This was typically done primarily for practical convenience so that a lengthy and expensive transfer pricing study was not had to be carried out, rather than doing this for the goal of tax planning.

Nevertheless, over the years, tax authorities have been more critical and have disputed the basis for allocation of expenses, the markup level, and also, more fundamentally, the manner of (cost-based) remuneration for certain intra-group services.

Transfer Pricing Considerations For Intra Company Management Services, Published by Lee Hishammuddin Allen & Gledhill.

Download to read more

.2 Transfer Pricing Considerations For Intra Company Management Services [Transfer-Pric

The OECD’s Guidance on Intra-Group Services

In its Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2017, the Organization for Economic Co-operation and Development (OECD) provides guidance on transfer pricing for intra-group services.

The guidance can be found in Chapter VII of the Transfer Pricing Guidelines, titled "Special Considerations for Intra-Group Services."

Malaysian TP Guidelines 2012: Part VI

What is an Intra-Group Service?

A "service offered by one company within an MNE group to another company within that same MNE group" is what's referred to as an "intra-group service,"

Benefits Test

The test for identifying intra-group services is to determine whether an independent enterprise would have been willing to pay for the service or to perform it for itself. The term for this evaluation is the Benefits Test.

  • Sometimes it’s straightforward to work out if an intra-group service has been provided

  • If the situation is less clear-cut, you will need to do a more complex analysis; the Malaysian Transfer Pricing Guidelines outline some of them below:-

  • Shareholder Activities

  • Duplication

  • Incidental Benefits

  • On-call Services

Shareholder Activities

Photo: Kevin Su

It would not be considered an intra-group service if a parent or holding company provided a service to one of the MNE group members as a shareholder.

This wouldn't be considered an intra-group service; instead, it would be regarded as a shareholder activity. Because the MNE group member likely did not request the service, the costs associated with providing it should be borne by the parent business.


Duplicative services are services performed by a group member that merely duplicates a service that another group member is already performing in-house or that a third party is performing.

Incidental Benefits

This refers to services performed by one member of a multinational group, such as a shareholder or coordinating centre, which relates only to specific group members but incidentally provides a benefit to other group members.

On-call services

Photo: Fong Chong Kok

An on-call service is where a parent company or a group service centre is on-hand to provide financial, managerial, technical, legal or tax advice to group members at any time.

Suppose you conclude that an independent enterprise would incur standby charges for the service in comparable circumstances. In that case, you should classify the service's availability as an intra-group service and identify a suitable arm’s length charge.

The following table summarises the types of services that may be chargeable and that are non-chargeable:

Characterisation of Intra-Group Service Activity

When referring to the provision of intra-group services, the term "management fee" is frequently employed as a synonym for "any charge between related parties."

However, according to the information that was provided in Section A of the Appendix of Form C for YA 2022, the following is a list of the roles that are included in the provision of intra-group services:

  1. Management-Service Provider;

  2. IT Service Provider;

  3. Treasury;

  4. Others

There is no uniform international definition for Intra-Group Services, which results from the heterogeneity in the understanding of such services in the reality of MNEs.

Hence, the Management-Service provider, IT Service Provider, and Treasury terms aren't defined elsewhere in the C 2022 Guidebook.

Management-Service provider