Management Fees and Shared Services: Preparing the Transfer Pricing Evidence File
A group invoice alone does not explain what the Indian entity received. Organise agreements, service evidence and allocation workings before reviewing management-fee pricing.
AI Summary
Scope: FY 2025-26 / AY 2026-27 under Sections 92 to 92F of the Income-tax Act, 1961 and relevant Income-tax Rules, 1962; later tax years require their own law/form check. Verification date: 11 October 2026.
Explain the service before defending the charge
Invoices described as “management fee” or “group support” can cover very different activities. A reviewer needs to understand what was provided, which entity received it and how the charge was calculated. Start with the service facts before selecting a transfer pricing method or discussing a markup.
For relevant AE services, the income-tax transfer pricing framework requires an arm's-length assessment. Documentation should make the transaction understandable and support the pricing conclusion. A signed agreement is useful, but it is only one part of the evidence.
Organise the evidence into four folders
- Terms: service agreement, scope, parties, period and charging mechanism.
- Delivery: reports, support tickets, project records, correspondence and other evidence of actual work.
- Allocation: cost pool, included/excluded items, allocation driver and Indian-entity share.
- Pricing: method selection, relevant analysis and reviewed conclusion.
Use a transaction reference across all four folders. A reviewer should be able to move from the invoice to the cost calculation and then to evidence of the service without searching an entire email archive.
A cost-allocation example
Assume a fictional group maintains an IT support cost pool of ₹60 lakh. After reviewing the pool, it allocates 20% to the Indian entity using an evidenced user-based driver. The allocated base is ₹12 lakh. If the agreement applies an illustrative 8% markup, the charge is ₹12.96 lakh.
| Calculation | Amount |
|---|---|
| Reviewed group cost pool | ₹60,00,000 |
| Indian entity allocation: 20% | ₹12,00,000 |
| Illustrative markup: 8% | ₹96,000 |
| Illustrative charge | ₹12,96,000 |
Neither 20% nor 8% is a recommended or automatically acceptable figure. Review whether the cost pool, allocation driver and markup fit the actual service and arm's-length analysis. A mathematically correct allocation can still be commercially unsupported.
Review the cost pool and driver
Check the period, reconciliation to group records and whether costs relate to the service being charged. Identify items needing assessment for duplication, shareholder activity or a different treatment. Do not simply allocate every headquarters expense by turnover.
Choose a driver with a defensible relationship to the service: users, transactions, time spent or another relevant measure. Obtain the supporting count and review changes. A driver selected only because it yields a convenient charge is difficult to defend.
Document delivery without creating artificial evidence
Preserve genuine service records as work takes place. A monthly IT ticket report, project delivery record or specialist advice can be more informative than a generic year-end certificate. Describe how the service connects with the Indian entity's operations.
Do not fabricate timesheets or rewrite routine emails to look like evidence of work that did not occur. Where evidence is missing, identify the gap and ask for existing records or a factual explanation.
Keep connected compliance reviews separate
TDS, GST, deductibility and foreign-remittance questions may also arise. A transfer pricing conclusion does not resolve all of them. Record the connected review owners and make sure the final charge agrees with books and reporting.
- Agree the invoice population with ledgers.
- Identify actual services and period.
- Reconcile the cost pool and allocation.
- Retain the reviewed pricing basis.
- Explain differences with Form 3CEB and financial-statement disclosures.
Use assureOffice financials to cross-check the final expense and related-party amounts where relevant, while retaining the substantive service evidence in the transfer pricing file. Clear facts make pricing review more efficient than a collection of unexplained invoices.
Explain allocations in ordinary business terms
For each recipient, describe what activity was performed and why the selected driver reflects its use or benefit. A headcount driver may suit one service but be a weak fit for another. Record why excluded entities or costs were excluded instead of allowing the spreadsheet's default range to determine the result.
Obtain the final provider cost schedule and reconcile it with the allocated amounts and invoices. Review later true-ups separately and explain their period. A concise narrative attached to a reproducible allocation calculation helps the reviewer understand the commercial arrangement without relying on broad assertions such as “group policy requires this charge”.
Related articles
- International Transactions for Form 3CEB: What Teams Commonly Miss
- Form 3CEB Reconciliation: Matching Transactions with Books and Financial Statements
- Intercompany Loans and Receivables: Preparing Data for Transfer Pricing Review