The 5% is a category, not a discount

The 5% mark-up on intra-group services is the cheapest defensible number in transfer pricing, and the one claimed by groups that fall outside it.

The simplified approach in Chapter VII of the OECD Guidelines lets a group charge support services at cost plus 5% and skip the benchmarking study. In exchange it sets a category test. The service has to sit outside the group's core business, use no unique intangible, create none, and leave the provider carrying no significant risk.

The risk condition is where files fail. A company described in the agreement as a purchasing agent, which takes title to the goods, holds the stock and carries the credit exposure, is doing something the agreement does not describe. The tell sits in the accounts: a low-risk provider on cost plus 5% does not report an operating loss.

Getting the category wrong costs more than the gap between two mark-ups, because the fix is re-characterisation rather than repricing. In Latvia the arithmetic is blunt. A transfer pricing adjustment is treated as deemed distributed profit. The rate is 20%, and the base is the adjustment divided by 0.8, which brings the charge to 25 cents in the euro, in cash, in the period of the adjustment. There is no profit precondition. A loss-making company pays the full amount.

The OECD reopened Chapter VII on 1 June 2026, and the draft leans harder on accurate delineation and contemporaneous evidence than the text it replaces. If the 5% in your file rests on what the service agreement calls the provider rather than on what the provider does and bears, this is a good year to look.