Six-Test Service Evaluation

Initial Criteria

Sequential checks begin with verifying the benefit test which asks if the local company would have paid an independent third party for the same work. In the six-test service evaluation investigators look for evidence that the service provided a distinct commercial value rather than simple shareholder activity. They scrutinize the duplication test where they check if the domestic subsidiary already has its own staff performing similar duties.

If the firm is already paying an accounting team locally it cannot also deduct a massive fee for accounting help from a regional hub without proving specialized extra assistance. These steps identify whether the transaction exists primarily as a tool to drain cash from the local accounts.

Operational Reality

Documenting the physical reality of the services requires entries such as detailed timesheets and travel records for consultants from the global office. Within the framework of the six-test service evaluation the bureau focuses heavily on the value added rather than just the cost incurred by the sender. Officials interview local department heads to ask which specific projects were helped by the offshore service teams and what deliverables were received.

If the local team cannot produce a single report or tangible piece of evidence for a thousand man-hours of consultation the deduction is at high risk. They also check for items that primarily benefit the parent such as the preparation of global consolidated reports which are classified as shareholder functions. Such non-deductible items are carved out of the calculation during the tax adjustment phase.

Financial Impact

Revenue collections increase significantly when generic group fees are trimmed through the detailed application of these evaluation steps. Large firms manage their risk within the six-test service evaluation by maintaining separate files for each major type of intra-group assistance. These files identify the allocation key used to divide costs among different countries to prove that no single unit is bearing an unfair share of the group’s global overhead.

Re-characterization of a fee into a dividend leads to double taxation in many cases because the firm loses the deduction locally while still paying withholding tax on the outgoing cash. Companies use regular internal self-checks to retire outdated service contracts that no longer pass the stricter modern standards of transparency. Successfully passing these tests results in a clean bill of health during multi-year tax inspections and lowers the likelihood of follow-up scrutiny from separate investigative departments.