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The Context: Why This Is Burning RIGHT NOW

On 1 June 2026, the OECD released a public consultation document proposing the most significant revisions to Chapter VII of the OECD Transfer Pricing Guidelines — the chapter governing intra-group services — since the BEPS era. The consultation closes on 22 July 2026.

That gives stakeholders 51 days to understand what is being proposed, assess how it affects their existing intra-group arrangements, and — for the bold — submit comments to the OECD.

For UAE businesses, the urgency is acute. The Federal Tax Authority’s Transfer Pricing Guide explicitly aligns with the OECD Guidelines. The UAE Corporate Tax regime, now in its second filing cycle, requires TP Disclosure Forms, Master Files, and Local Files for qualifying taxpayers. And intra-group services — management fees, shared service charges, IT support, seconded employees, royalty administration — represent the single largest category of related-party transactions in the UAE economy.

The OECD’s proposals do not change the fundamental principles. But they raise the bar on delineation, documentation, and defensibility in ways that will reshape how UAE groups structure and evidence their intra-group service charges. This article explains what is changing, what it means for UAE taxpayers, and what to do about it — before the window closes.

The Technical Standard: What Chapter VII Actually Says (and What’s Changing)

The Current Framework

Under the 2022 OECD Guidelines, Chapter VII is organized into four sections: Introduction, Main Issues, Examples, and Low Value-Adding Intra-Group Services. The core principle is straightforward: an intra-group service exists where an activity performed by one group member provides an economic or commercial benefit to another group member that an independent enterprise would be willing to pay for (the “benefit test”). If the service exists, it must be priced at arm’s length.

In practice, UAE businesses have often defaulted to a cost-plus 5% markup on management fees and shared services — a practice that, while administratively convenient, has never been a safe harbor under the OECD Guidelines.

The Proposed Restructuring

The consultation document restructures Chapter VII into five sections plus an illustrative annex:

1. Introduction — Streamlined, clarifies that tax authorities should respect transactions as structured, not recharacterize them
2. Accurate Delineation of Intra-Group Services — Strengthened analytical framework emphasizing functional and factual analysis before any pricing method
3. Determining the Arm’s-Length Charge — Expanded pricing guidance recognizing a spectrum from low value-adding to complex integrated services
4. Documentation — New dedicated section supplementing Chapter V with Chapter VII-specific evidentiary requirements
5. Low Value-Adding Intra-Group Services — Retained and updated
6. Annex — New illustrative examples

Six changes matter most for UAE taxpayers:

Change 1: The Benefit Test — Entity by Entity, Contemporaneously Evidenced

The OECD is making explicit what was previously implicit. The benefit test must be applied on an entity-by-entity basis. Where activities are performed for multiple group entities, only entities that actually receive the benefit should bear the costs.

Crucially, the consultation confirms that an expected benefit may be sufficient. A service should not be disregarded merely because the anticipated commercial outcome does not materialize, or because the recipient entity is loss-making. But that expected benefit must be identified and reasonably expected at the time of the transaction, not retrospectively constructed.

UAE Impact: This directly challenges the common practice of allocating holding company costs across all subsidiaries based on revenue or headcount without analysing whether each subsidiary actually benefits. A Dubai holding company charging “management fees” to a Ras Al Khaimah subsidiary that receives no discernible benefit will not survive scrutiny.

Change 2: Shareholder Activities — Sharper Definition, Stricter Allocation

The consultation introduces a more detailed list of activities commonly regarded as shareholder costs, and confirms that such costs should generally be borne by the relevant shareholder entity — which may be an intermediate or regional holding company, not solely the ultimate parent.

At the same time, it cautions that the involvement of parent-company personnel, including senior management, does not automatically render an activity a shareholder activity. The fact that a shareholder incidentally benefits does not preclude a service charge — provided the benefit test is otherwise satisfied for the recipient.

UAE Impact: Many UAE groups have their ultimate parent abroad and an intermediate holding company in a UAE free zone. The new guidance makes clear that shareholder costs should sit at the intermediate level where appropriate — but only if the activities are genuinely shareholder activities, not disguised service charges. The distinction between “stewardship” and “services” just got sharper.

Change 3: No Automatic Cost-Plus — Pricing Must Reflect Functional Reality

The consultation explicitly rejects the presumption that a one-sided transfer pricing method (such as the cost-plus method) is automatically appropriate merely because a service charge exists. The transaction must first be accurately delineated.

The OECD explicitly acknowledges that arm’s-length outcomes may be:

• At cost (for routine, low value-adding services)
• Significantly above cost (for high value-adding services involving specialized expertise or intangibles)
• Below cost (where market conditions or strategic considerations would lead an independent party to accept a lower price)

The spectrum runs from low value-adding services (for which a simplified approach may apply) to complex, integrated services where the profit split method may be appropriate.

UAE Impact: The common UAE practice of applying a flat 5% cost-plus markup to all intra-group services — management, IT, HR, finance — is directly challenged. A UAE regional headquarters providing strategic marketing services and access to proprietary brand intangibles should arguably earn more than a 5% markup. Conversely, a routine payroll processing service may warrant no markup at all. Each service type requires its own analysis.

Change 4: Documentation — The Evidentiary Bar Is Rising

The consultation introduces a dedicated documentation section for Chapter VII, supplementing Chapter V. Taxpayers will need:

• Contemporaneous evidence of expected benefits
• Documentation of service scope and uptake by each recipient
• Technical materials and deliverables demonstrating the services performed
• Explanations of cost-allocation methodologies
• Construction of the cost base
• Identification of pass-through costs

This is not a minor administrative change. It represents a shift from documenting that a charge was made to documenting why the charge represents an arm’s-length outcome — and doing so contemporaneously, not retrospectively.

UAE Impact: The UAE TP Disclosure Form currently requires taxpayers to list related-party transactions by type, counterparty, and value. Under the new Chapter VII, the underlying documentation supporting those disclosures will need to be substantially more robust. A one-page intercompany agreement and an invoice will not suffice.

Change 5: Stock-Based Compensation — The Elephant in the Cost Base

For the first time, the OECD is specifically seeking input on the treatment of stock-based compensation (SBC) in the context of intra-group services. The consultation raises questions about timing, accounting treatment, and valuation but does not yet propose specific guidance.

UAE Impact: Many UAE subsidiaries of global multinationals have employees who receive parent-company equity. Whether and how SBC costs are included in the cost base for intra-group service charges has been a grey area. The OECD’s interest signals that guidance is coming — and UAE groups should begin tracking SBC costs attributable to intra-group service personnel now.

Change 6: Mixed and Bundled Arrangements — Separate, Then Price

The consultation addresses situations where intra-group services are bundled with other transactions — for example, a management fee that also covers the administration of intangible property rights. The guidance emphasizes that service elements should be separated from goods transfers or intangible licensing for pricing purposes.

UAE Impact: UAE groups commonly bundle trademark licensing, management services, and procurement support into a single “management fee.” The new guidance suggests these should be disaggregated, with each element priced according to its own transfer pricing method. This adds complexity but also clarity — and may identify elements that are improperly being charged.

Real UAE Scenarios

Scenario A: The Holding Company Management Fee

Facts: UAE HoldCo (a free zone entity) charges each of its three operating subsidiaries AED 2 million annually as a “management fee.” The fee is calculated as 2% of each subsidiary’s revenue. No functional analysis has been performed. No documentation of services provided exists beyond an intercompany agreement and annual invoices.

Under Current Practice: Many advisors would apply a 5% cost-plus markup on HoldCo’s operating costs, allocate across subsidiaries, and call it compliant.

Under Revised Chapter VII:

• The benefit test must be applied entity-by-entity. Does Subsidiary C, which operates independently with its own management team, actually receive a benefit from HoldCo’s activities?
• The cost allocation methodology (2% of revenue) must be justified — it is unlikely to correlate with actual benefit received.
• Contemporaneous documentation of expected benefits, service scope, and deliverables is required.
• If HoldCo’s activities include shareholder activities (e.g., preparing consolidated financial statements for the ultimate parent), those costs must be excluded from the charge.

Outcome: Subsidiary C’s charge may need to be reduced or eliminated. Documentation must be substantially upgraded. The 5% markup may not be defensible if HoldCo is performing high value-adding strategic functions.

Scenario B: Regional HQ Shared Services

Facts: UAE Regional HQ provides IT support, HR, finance, and marketing services to five MENA subsidiaries. Costs are pooled and allocated based on headcount. A 7% markup is applied.

Under Revised Chapter VII:

• IT support may qualify as a low value-adding service (simplified approach, potentially at cost).
• Marketing services involving brand strategy and intangibles may warrant a significantly higher markup — potentially using TNMM or even profit split if the value contribution is substantial.
• The headcount allocation key must be justified. IT support might be better allocated by number of devices or tickets. Marketing by revenue or market-specific spend.
• Pass-through costs (e.g., software licenses procured centrally and recharged) must be separately identified.

Outcome: The single-rate approach is no longer adequate. Each service stream should be separately delineated, priced, and documented.

Specific Documentation Language

For UAE taxpayers preparing or updating intra-group service documentation, the following framework should be adopted:

1. Functional Analysis — Intra-Group Services

“The Company has undertaken a detailed functional analysis of each category of intra-group service received. For each service category, we have identified: (a) the specific services performed; (b) the functions used, assets employed, and risks assumed by the service provider; (c) the economic and commercial benefit reasonably expected by the recipient at the time the services were engaged; (d) the contractual terms, including scope, duration, and pricing mechanism; and (e) whether any element of the services constitutes a shareholder activity, duplication, or incidental benefit.”

2. Benefit Test — Entity-by-Entity Assessment

“The Company has prepared a benefit analysis for each recipient legal entity, documenting: (a) the services received; (b) the specific commercial or economic benefit to that entity; (c) contemporaneous evidence of the expected benefit (board minutes, service agreements, emails, deliverables); and (d) confirmation that the benefit is sufficiently direct that an independent enterprise in comparable circumstances would be willing to pay for it.”

3. Cost Allocation Methodology

“Costs have been allocated using [allocation key] which has been selected because [justification — e.g., headcount correlates with HR service consumption, IT tickets correlate with IT support consumption]. The allocation key has been reviewed for reasonableness by reference to [benchmark/comparison]. Pass-through costs of AED [X] have been separately identified and are not subject to markup.”

4. Pricing Methodology Justification

“The [CUP/Cost-Plus/TNMM/PSM] method has been selected as the most appropriate transfer pricing method for this category of services because [reasoning referencing the nature of services, availability of comparables, functional profile of provider, and degree of integration or intangibles involvement]. The arm’s-length range has been determined by reference to [benchmarking study/source] and the Company’s charge falls within the [interquartile range/point estimate].”

FSH Professional Perspective: What We Advise Clients to Do

The OECD revision is not yet final — the consultation closes 22 July 2026, and a public consultation is scheduled for November 2026. The revised Chapter VII will likely be adopted in 2027. But the direction of travel is unmistakable, and the UAE FTA has consistently aligned with OECD standards.

Here are five concrete actions UAE businesses should take now:

1. Map Your Intra-Group Service Flows — This Month

Before you can defend your charges, you need to know what they are. Prepare a matrix listing every intra-group service arrangement: provider, recipient(s), service description, annual value, pricing methodology, and existing documentation. You may be surprised by what you find.

2. Perform an Entity-by-Entity Benefit Analysis

For each recipient entity, ask: does this entity actually receive a commercial or economic benefit from this service? Can I evidence that benefit contemporaneously? If the answer to either question is no, the charge is vulnerable.

3. Separate Shareholder Activities from Services

Review all activities performed by holding companies and regional headquarters. Identify which activities are shareholder activities (costs that should NOT be charged to subsidiaries) and which are genuine services. Document the rationale. Expect the FTA to ask.

4. Upgrade Your Documentation — Now, Not Retrospectively

The single most important shift in the OECD’s proposals is the emphasis on contemporaneous evidence. Board minutes, service agreements, email trails, deliverable logs — these should be assembled as the services are performed, not when the FTA asks. Start building the file today.

5. Consider Submitting Comments to the OECD

The consultation is open until 22 July 2026. UAE businesses with significant intra-group service structures have a unique perspective — particularly on the interaction between the proposed guidance and the practical realities of operating in a jurisdiction with a relatively young transfer pricing regime. The OECD is specifically seeking input on allocation keys, stock-based compensation treatment, and the practical application of the benefit test. This is an opportunity to shape the guidance that will govern your compliance for years.

The Bottom Line

The OECD’s Chapter VII revision is not a paradigm shift — it is a sharpening. The principles remain: services must provide benefit, and charges must be arm’s length. What is changing is the precision with which taxpayers are expected to demonstrate both.

For UAE businesses, this is not an academic exercise. The FTA’s risk-based audit framework, combined with the mandatory TP Disclosure Form and the imminent e-invoicing regime, means that intra-group service charges will be more visible — and more scrutinizable — than ever before.

The businesses that act now — mapping flows, documenting benefits, and upgrading evidence — will be the ones that survive the audit. The ones that wait for the FTA to ask will be building their defense from a position of weakness.

The window is open. The OECD wants to hear from you by 22 July. And regardless of what the final guidance says, the direction is clear: the era of the undocumented management fee is over.

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