Management fees and intra-group services are where transfer pricing meets everyday group life. A parent provides accounting, IT, HR or management to its subsidiaries and charges for it. A regional office supports the businesses around it. These charges are legitimate, but they are also one of the most scrutinised areas, because a service fee is an easy way to move profit and a hard thing to prove. The Authority tests them on two fronts: did the service happen, and was the charge arm's length.
The benefit test comes first
Before price, there is existence. A charge for an intra-group service is only deductible if the service was actually provided and if it gave the recipient a real benefit, something it needed and would have paid an independent party for. A service that duplicates what the recipient already does, or that benefits the group as a whole rather than the specific company, may fail this test. The first question a review asks is not how much, but whether the recipient got anything of value at all.
Shareholder costs are not chargeable
A particular trap is the shareholder cost. Activities a parent performs in its capacity as owner, such as preparing consolidated accounts, holding board meetings, or managing its own investment in the subsidiary, benefit the parent, not the subsidiary. These cannot be recharged to the subsidiary as a service, because the subsidiary would never have paid for them. Sweeping shareholder costs into a management fee is a common way that intra-group charges become indefensible.
Pricing the charge
Where a genuine service was provided, the charge must be arm's length. That usually means the costs of providing the service plus an appropriate mark-up, or a direct charge where the service can be identified to a recipient, or a reasonable allocation where it cannot. The mark-up and the allocation keys both have to be justifiable. A round-number annual fee with no link to actual costs or benefits is the classic weak position, because it looks like a profit transfer dressed as a service.
Agreements and evidence
The service should be governed by an intercompany agreement that matches what actually happens, and supported by evidence that it was delivered: the cost base, the allocation method, and some proof of the activity. A fee charged without an agreement, or under an agreement that describes something different from reality, undermines itself. The documentation is not bureaucracy here. It is the difference between a deductible cost and a disallowed one.
What to do about it
For every intra-group charge, confirm the service was real and gave the recipient a genuine benefit. Strip out shareholder costs, which cannot be recharged. Price the charge on a defensible basis, cost plus an appropriate mark-up or a reasoned allocation, not a convenient round figure. Put an agreement in place that reflects the actual arrangement, and keep evidence that the service was delivered. Management fees are legitimate and common. They are also among the first things tested, so they earn their deduction only when the substance and the pricing both hold.
This article is general information on UAE transfer pricing and is not tax advice. The rules on intra-group services should be confirmed against current legislation. We would be glad to review your management fee and service charges.