Low value-adding intra-group services are a common feature of multinational enterprise structures, involving support services provided by one group entity to another. The safe harbour regime under the Income Tax Act, 2025 provides a simplified framework for such services, with a clear ₹10 crore threshold and a 5% markup cap.
What Are Low Value-Adding Intra-Group Services?
Low value-adding intra-group services are services that are performed by one or more members of a multinational enterprise group on behalf of one or more other members of the same group. They are characterised by:
- Being in the nature of support services
- Not being part of the core business of the group
- Not being in the nature of shareholder services or duplicate services
- Neither requiring the use of unique and valuable intangibles nor leading to their creation
- Neither involving the assumption nor control of significant risk
- Not having reliable external comparable services
Services Excluded from LVIS
The following services are specifically excluded:
- Research and development services
- Manufacturing and production services
- Information technology (software development) services
- Knowledge process outsourcing services
- Business process outsourcing services
- Purchasing activities of raw materials or other materials used in manufacturing or production
- Sales, marketing, and distribution activities
- Financial transactions
- Extraction, exploration, or processing of natural resources
- Insurance and reinsurance
The ₹10 Crore Threshold
The safe harbour for low value-adding intra-group services applies where the aggregate amount of such services during the tax year does not exceed a sum of ₹10 crore.
Calculation of Aggregate Amount
The aggregate amount includes the cost of services plus the markup. The cost pool must be determined in accordance with the rules, excluding shareholder costs and duplicate costs.
Method of Cost Pooling
The method of cost pooling, the exclusion of shareholder costs and duplicate costs from the cost pool, and the reasonableness of the allocation keys used for allocation of costs to the assessee must be certified by an accountant.
The 5% Markup Cap
The markup on low value-adding intra-group services must not exceed 5%. This means the total amount charged for the services cannot exceed the cost of providing the services plus 5%.
Example
If the cost of providing services is ₹100:
- Maximum markup: ₹5
- Maximum total charge: ₹105
Certification Requirements
The safe harbour requires certification by an accountant confirming:
- The aggregate amount of low value-adding intra-group services during the tax year does not exceed ₹10 crore
- The markup does not exceed 5%
- The method of cost pooling is appropriate
- Shareholder costs and duplicate costs have been excluded from the cost pool
- The allocation keys used for allocation of costs are reasonable
Practical Considerations
Identifying LVIS
Taxpayers must carefully identify which services qualify as low value-adding. Services that are part of the core business or involve unique intangibles do not qualify.
Cost Pooling
The cost pool must include all costs associated with providing the services. Shareholder costs (costs incurred for the benefit of shareholders) and duplicate costs (costs that duplicate services already available) must be excluded.
Allocation Keys
Allocation keys must be reasonable and based on identifiable benefits. Common allocation keys include headcount, revenue, or specific usage metrics.
Expert Legal Guidance
Understanding the low value-adding intra-group services safe harbour is essential for MNEs with support service arrangements. Anuj Desai & Associates provides expert advisory services on transfer pricing compliance, helping taxpayers assess eligibility, structure cost pools, and ensure compliance with all safe harbour conditions.