A service charge, which is also called a service fee, is a fee paid for services related to a product or service that is being bought. In other words, a service charge is an extra fee added to the price of a product or service for the service that comes with it.

Intercompany service fees can be charged across borders when the assistance improves the business position of the company receiving the service. Services can be anything from technical services to support for the back office, but both US and international transfer pricing rules put limits on when charges are allowed.

Tax authorities all over the world are worried about multinational companies that charge for services between companies. Intercompany service charges lower the amount of taxable income in the country that receives the services and raise the amount of taxable profits for the business that provides the services.

Companies can benefit from intercompany service charges, but a major concern is how to handle tax risks. Any intercompany service fee payments made across borders can be called into question by the IRS or any other tax authority.One common argument is that, without the service provider, the company getting the services would have to pay someone else.If a company can't prove that the services they provided were worth the money they charged, taxpayers will have a hard time appealing.

Companies should use a method called "direct charge." If management and administrative staff do keep track of how much time they spend helping each company run, taxpayers will be able to show what day-to-day benefits are provided. Tax auditors are less likely to believe indirect ways of allocating service fees on a pro-rata basis, like sales, especially when there isn't much background information to back it up. The allocation method can be questioned by the authorities in the recipient companies as being unreliable, and in some countries, indirect charging methods are not allowed at all.