PART VI – SPECIFIC TRANSACTIONS
20. Intragroup Services
20. Intragroup Services
20.2 Intra-group services prohibited
activities:-
- Shareholders activities
·
meetings of shareholders
·
issuing of shares
·
cost of producing consolidated accounts
·
filing of prospectuses
·
Costs of raising funds
- Duplicative
services
-
services performed by a group member that merely duplicates a
service that another group member is already performing in-house, or
that is being performed by a third party (e.g. reviewing of operational budget
by parent company’s financial personnel)
-
There is exception of duplicate services which allowed to claim
under circumstances such as:-
o
Special circumstances where duplication is only temporary.(e.g. implementing a new
system)
o
Getting a second legal opinion on a particular project
- Services
that provide incidental/passive association 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 members
of the group.
-
E.g. an enterprise that had obtained a higher credit rating due to
it being a member of a multinational group should not be charged for its mere
association with the group. However, if the higher credit rating is due to a guarantee
provided by another group member, then an intragroup service can be
considered to have been rendered
- On-call
services
-
This service is considered non-chargeable under thefollowing
circumstances:
•
Service is easily and promptly available even without any
standby arrangement;
•
The potential need for such service is remote;
•
Where there is no/negligible benefits derived from the
service.
-
It is only chargeable when the company can proven that an
independent person in comparable circumstances would incur such charges to
ensure availability of the services when the need for them arises.
20.5 Methods of charging for provision of services:-
(1)
Direct Charge Method
-
cost incurred and the basis of charge can be clearly identified
-
Specific service forms part of the main business activity of the
service provider
(2)
Indirect Charge Method
-
Direct charge method is impractical or if the arrangements for the
services provided are not readily identifiable
-
E.g. sales promotion activities, provision of information
technology services
20.6 Determination of arm’s length charge for intragroup
services
-
Assumption on: The service must be of value to the recipient and
the price must be one that an independent party would be prepared to pay.
20.7
Profit Mark-up
- mark-up on a cost base is
justifiable since in an uncontrolled transaction an independent person would
normally seek to earn a profit from providing services, rather than merely
charging them out at cost
- The nature of service and the expected
value to a recipient influence the arm‟s length price of the
service provider
- It must be ensured that the arm‟s length return is limited to rewarding the agency/intermediary
function only if the role of an agent or intermediary to obtain services from
independent enterprises on behalf of its group members
- Foreign comparison figure need not
automatically be deemed arm‟s length in Malaysia
21. Cost
Contribution Arrangement (CCA)
- is a framework (in the form of contractual
agreement) agreed among business enterprises to share the costs and risks
of developing, producing or obtaining assets, services or rights, and to
determine the nature and extent of the interests of each participant in those
assets, services or rights.
- Types of CCA most commonly
encountered:-
- Arrangement
for the joint development of intangible property - each participant contributes
different assets
- Service
Arrangement - exist
for any joint funding or sharing of costs and risks (e.g. developing or
acquiring of property)
Table summarizes 
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