Analysis of Cost Recharging Transactions (Recharges)

Cost recharging is one of the most common types of transactions within corporate groups — covering, among others, service costs, licences, materials, travel expenses or payroll costs incurred by one entity on behalf of another.
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Although the mechanism appears simple, from a transfer pricing perspective it is subject to the same requirements as any other controlled transaction: the remuneration must be economically justified, arm’s length, and properly documented.Our analysis provides an objective assessment confirming compliance with the arm’s length principle and significantly reduces the risk of the tax authorities challenging the settlement.

As part of the service, we prepare:

1. Transaction profile and justification: description of the recharged costs and identification of the actual beneficiary, assessment of whether the recharge is a “pure pass-through” (no margin) or includes a remuneration component for functions performed by the recharging entity, functional, asset and risk analysis (FAR), assessment of compliance with the benefit test (whether the costs actually benefit the recipient).

‍2. Selection of the appropriate method and market data: depending on the nature of the transaction:
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‍• Recharge without margin
– confirmation of arm’s-length character through benefit test and assessment of lack of added value.
‍• Recharge with margin
– selection of the appropriate method (TNMM or CUP, where possible),
– identification of comparable data in databases (e.g., Amadeus/Orbis),
– determination of selection criteria: industry, functions, cost model, risk level.

‍3. Benchmarking analysis (for recharges with margin): initial automated filtering according to predefined criteria, manual screening of the comparables set (typically 100–200 entities), obtaining the final comparable sample (5–50 entities), determination of the market range (IQR / full range), assessment of whether the applied recharge (with or without margin) is within the arm’s-length range.

‍4. Benefit test analysis (for pass-through recharges): conditions required for treating a recharge as a pure pass-through cost, in line with OECD recommendations:

‍• Benefit Test — the recipient must obtain a real, measurable economic benefit for the cost to be chargeable,
‍• Exclusion of Shareholder Activities — costs incurred solely for the benefit of the shareholder or group cannot be recharged,
‍• No Value Added Rule — if the recharging entity does not perform value-creating functions, the cost should be passed on without a margin,
‍• Objective and proportional allocation keys — shared costs must be allocated using rational, measurable, and consistently applied keys.

‍5. Documentation and argumentation: preparation of the analysis draft (Word, approx. 10–15 pages + appendices), presentation of the settlement model and economic justification for the recharge, development of argumentation aligned with OECD Guidelines and Polish TP regulations, preparation of the final version, including materials for TPR and Local File.

‍Client outcome: the recharge analysis enables the company to: confirm that settlements comply with the arm’s length principle, avoid the risk of tax authorities challenging costs or revenues, streamline internal processes for cost allocation within the group, improve transparency and auditability of transactions.