Sweden’s evolving headquarters: from operational support to value creation
Although a small country, Sweden is home to many large multinational enterprises (MNEs) with global reach. This is partly due to a highly educated workforce, good infrastructure, and a strong capital market. Being the headquarters (HQ) country of several MNEs naturally raises the question of how HQ activities should be treated from a transfer pricing perspective.
To this day, centralised activities are often charged based on standardised cost‑plus models. Such models have worked rather well for routine, low value-adding services.
However, in recent years, centralised activities have expanded into something more complex. The focus is now increasingly turning to providing strategic and more substance-based services such as:
Regional/global leadership;
Coordinating group-wide knowledge sharing;
Product and platform strategy;
Data‑driven commercial steering; and
Risk control across multiple territories.
As a result, in many company groups, Swedish HQs now initiate and control economically significant decisions such as pricing, channel architecture, IP management/development, and roadmaps for digital services. Such activities directly drive revenues and margins outside Sweden. Tax authorities increasingly view these as ‘above‑market’ activities, for which a routine cost‑plus return often fails to reflect the provided value.
These developments are observed globally. For example, HM Revenue and Customs, the UK tax authority, has already issued guidance that explicitly highlights this pattern. The guidance suggests that global strategic leadership and risk control housed in one country, often the HQ country, could warrant returns linked to the value created across the markets benefiting from the services rather than relying on a local cost base uplift (cost-plus model).
Moreover, this also seems to reflect the broader discussions in the OECD where high‑value intra‑group services blend know‑how, data, and centralised decision‑making with execution by local entities. As a result, the distinction between services and intangibles has become blurred and it appears to be a growing agreement that these areas are increasingly overlapping. This challenges pricing models based solely on costs incurred in the company performing the services.
This topic was also central at the International Fiscal Association’s (IFA’s) congress in Lisbon held in October 2025, where the OECD provided insights into its work on revising Chapter VII of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations for intra‑group services.
Pricing playbook: current application and coming changes
Routine services: the cost-based approach
For low value‑adding services, standardised cost‑plus models have long been a pragmatic solution. The connected functions are support‑oriented, lack significant risk control, and may often be outsourced to the market at modest mark-ups. These facts also support a pricing methodology that leverages a benchmarkable margin on cost.
As such services will still be performed, in some cases in parallel with high value-adding services, these simplified measures remain an effective tool for reducing administration and disputes. However, these guidelines were never designed for high value-adding services that impact revenue and profit growth. The distinction between low‑value and high‑value decisions was highlighted in Lisbon as a necessary starting point for method selection under a revised Chapter VII.
High‑value services: where the cost-based approach breaks
When Swedish HQs, or any centralised hub, lead strategy, control economically significant risks, and drive non‑domestic revenue or margin, a routine uplift on local cost disconnects remuneration from the provided benefit and value created in other markets.
The OECD’s message at the IFA congress in Lisbon was consistent: modern services frequently overlap with intangibles and data. Accurate delineation must reflect conduct, control, and contribution across the value chain, not just contracts. In other words, the pricing method must align with the generated value.
The Lisbon 2025 signal: what the OECD is building into a revised Chapter VII
At Seminar F in Lisbon – “Transfer Pricing for Services & Financial Transactions” – a panel featuring senior OECD representatives, including Manuel de los Santos, head of the Transfer Pricing Unit at the OECD, outlined the expected direction of travel for Chapter VII revisions. In short, this included the following:
Clearer delineation for complex, technology‑enabled services where lines blur between services, intellectual property, and data.
Stronger guidance on the benefit test, including multi‑jurisdictional beneficiary analysis and appropriate allocation keys.
A recognition that for high‑value services, cost‑plus is not the default model. Market-based comparable uncontrolled prices (CUPs), revenue‑ or margin‑linked profit level indicators, profit splits, or hybrid models may better reflect the provided value than standard mark-ups.
Enhanced expectations regarding documentation, comparability, and method selection, emphasising substance, business conduct, and risk control; i.e., moving away from legal form (contracts).
Although the OECD did not release any written guidance in Lisbon, the seminar outlined a Chapter VII update that would modernise the guidance on intra-group services in line with value chain analysis and the OECD’s broader functional analysis framework.
The following are areas to focus on when assessing high‑value service models:
Identify ‘above‑market’ roles and price them separately;
Choose profit level indicators that reflect where value is created; and
Document risk-control functions, corroborate pricing and differentiation between performed low-value and high-value activities.
In summary, these areas point towards substance‑based and benefit‑linked remuneration for high‑value services and indicate a shift away from using one‑sided routine transfer pricing models by default.
Complexities linked to low value-adding services and spillover effects for high value-adding services
In contrast to the above, it should be noted that the use of cost-plus models for low value-adding services does not, in the current tax landscape, go unchallenged in the jurisdictions paying for the centralised activities. In fact, compliance burdens are rising, and tax authorities tend to challenge management fee structures and deny deductibility of such expenses even if the transfer pricing model appears reasonable. Key grounds for denial include lack of demonstrable benefit received by the recipient and insufficient evidence that the management services were actually performed.
Companies now face a situation where documentation of, for example, meetings, emails, policies, business trips, and invoices and the availability of written contracts may not be sufficient to justify the charged management fee. Tax agencies want clear evidence that shows that the recipient receives tangible value from the provided management services. Moreover, they also frequently request detailed information on allocation rationales and cost pool components. However, if the provided services can be tied to a beneficial profit and loss impact, the chances of defending the deductibility of management fee expenses significantly increases.
Other recurring lines of argumentation from local tax authorities are centred around the classification of shareholder costs and whether these costs have been correctly segregated. Moreover, management fee expenses relating to activities such as central HR, finance, and legal are frequently challenged on the basis that the local tax authorities consider that such activities in part, or whole, constitute duplicative services that do not qualify as chargeable intra-group services.
Despite clear signals that the OECD is moving towards a more substance-based, value-linked remuneration for high-value services, and away from the traditional default reliance on cost-plus models, it is evident from the current landscape that transitioning to new pricing models is not without its challenges. As demonstrated above, cost-plus approaches for low value-adding services often face thorough scrutiny during tax audits, with tax authorities frequently questioning deductibility and requiring robust proof of tangible benefits and value received by recipients.
As Chapter VII updates become reality, it is not unreasonable to expect an increase in uncertainty and litigation. Businesses will likely struggle with new compliance expectations and potential disputes over the delineation and pricing of intra-group services. These challenges may be even more elevated for HQs that may have parallel remuneration models for both low value-adding services and high value-adding services. To reduce complexities arising from operating multiple service models, strategic HQs could consider outsourcing the provision of low value-adding services to shared service centres or other routine service hubs.
Moreover, the introduction of new, more sophisticated remuneration models for high-value activities is likely to increase outbound payments from market countries to HQ countries. This may, in turn, attract attention from local tax authorities.
Consequently, the initial period following the revised Chapter VII could lead to an increase in tax disputes until clearer guidance and real-world examples help establish more consistent practices and reduce ambiguity in the application of revised principles.
What to expect next from the OECD
The OECD’s intent, as voiced in Lisbon, is to update Chapter VII so that the delineation, method selection, and documentation of services more accurately reflect how modern businesses create value. That means more explicit guidance for high‑value services, more real‑world examples, and better tools for managing the benefit test.
A draft version of an updated Chapter VII is expected to see the light of day in spring 2026 and will likely be subject to extensive discussions.
Value-based services models will better reflect the true contributions generated by strategic service HQs or centres in today’s value chains. By adopting value‑linked methods and backing them with value chain analysis, governance models, and robust evidence on revenue and profit growth, a solid foundation to achieve arm’s‑length outcomes and help in managing disputes will be created.
Nevertheless, the implementation of the new concept of high value-adding services will not be without challenges and scrutiny from tax authorities. For multinationals whose HQs now decide on and manage strategy and risk across continents, the new guidance should be welcomed.
Sweden’s HQ ecosystem is well placed to lead the transition from cost‑based service models to value‑based service models. These models are already receiving increased attention, and once the updated Chapter VII is published, the transition from cost-based to value-based pricing is likely to accelerate further.
As always, being at the forefront of transfer pricing is complex but highly rewarding!
