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Shiv Mahalingham, a managing director in Duff & Phelps' European transfer pricing practice, answers a query in Tax Journal's "Ask an expert" on making a lump sum payment for a service upfront instead of on an annual basis:
There have been situations in which businesses pay for services upfront as a lump sum for administrative ease. However, in establishing intra-group payments on this basis, is there a risk that tax administrations may challenge deductions under transfer pricing principles? Under arm's length conditions, can I make a lump sum payment for a service upfront or should there be an annual charge in the P&L?