Global capability centres · Software and SaaS
A capability centre's cost base, markup and cross-charges that hold up to examination
A mid-market capability centre exists to serve its parent, so its revenue is a formula: cost plus a markup. That formula works only if the cost base is complete, the cross-charges in both directions are reconciled and the invoice is trued up to actual. We keep all three in order and report in the format the parent's finance team uses.
In one paragraph
Mid-market global capability centres are Indian subsidiaries or branches of overseas companies that provide technology, engineering, finance or operations support to their group. Most have a few hundred people or fewer and no large local finance team. For centre heads and India finance heads, profit is set by policy rather than by the market. The work is about evidence: a defensible cost base, a consistent markup and services that qualify as exports.
Centre head or India finance head, often with the parent's group controller
The economics
How the money moves in this trade
A capability centre's income is usually a service fee from the parent or another group entity. It is calculated as total cost plus an agreed markup and invoiced monthly or quarterly in foreign currency. The cost base has to capture everything the centre consumes, including costs the parent pays on its behalf: group software licences, insurance, travel and stock options granted by the parent. Pass-through items need consistent treatment. Each of those choices changes the fee and the taxable profit in India.
Cross-charges run in both directions. The parent recharges licences and shared services to India, and India may recharge secondees or local costs back. Unless both sides are booked in the same period and at the same rate, the intercompany balance never agrees. The service fee must also meet every condition for an export of services under GST. The intermediary rule that once put many centres' export status in doubt was removed in 2026, but earlier periods can still be examined. The intercompany agreement and the actual work still have to match.
The problem
Where the numbers usually break down
Fee raised on budget, never trued up
The monthly invoice uses budgeted cost, and the year-end difference from actual is either ignored or corrected in one late adjustment.
Parent-paid costs missing from the cost base
Licences, insurance, stock-based compensation and travel paid by the parent are not captured in India, so the cost base and the markup are understated.
Intercompany balances that never agree
Recharges are booked by each entity at different times and exchange rates, so the balance differs at every quarter-end.
Pass-through costs treated inconsistently
Third-party costs meant to be recharged at cost are sometimes marked up and sometimes not, with no written policy.
Agreement and actual work out of step
The intercompany agreement describes the services as they were at set-up, while the centre now does broader work that neither the agreement nor the GST position reflects.
What we do
The work, and the result each part produces
Cost-base definition
A written cost-base policy covering what is included, what is passed through at cost and how parent-paid costs are captured.
The fee rests on a complete and stated cost base.
Quarterly true-up
Actual cost compared with billed cost each quarter, with the true-up invoiced or credited before year-end.
No large surprise in the final quarter.
Intercompany reconciliation
Cross-charges in both directions matched with the counterparty's books, in the same period and at an agreed rate.
Intercompany balances agree at every quarter-end.
Export-of-service support
Invoices, foreign inward remittances, the letter of undertaking and GST returns kept consistent, with refund claims prepared.
The export position is documented invoice by invoice.
Transfer-pricing working file
Cost, markup computation and functional information maintained through the year for the licensed professional who prepares the transfer-pricing documentation and report.
Documentation is assembled from records, not reconstructed.
Parent-format reporting
Monthly cost-centre reporting in the parent's chart of accounts and calendar, reconciled to the Indian statutory books.
One set of numbers serves both the group and Indian compliance.
Where we start
The first steps of an engagement
Agreement, ledgers and parent recharges
We ask for the intercompany agreement, the trial balance and cost-centre ledgers, the service-fee invoices, the parent's recharge statements and a list of costs the parent pays for India.
Billed cost against actual
Cost billed to the parent is compared with actual cost for the year to date. The intercompany balance is matched with the counterparty's books.
Written cost-base policy
A cost-base policy is set down covering inclusions, pass-through items and parent-paid costs, and a quarterly true-up is scheduled.
Cost base and markup report
The first report shows billed against actual cost, the markup on the stated cost base and intercompany balances agreed with each counterparty.
How it is measured
The reports the work is judged on
Each is recorded as a baseline before the work starts, so later reports have an honest comparison.
- Billed cost against actual cost, by quarter
- Markup applied on the stated cost base
- Intercompany balances agreed with each counterparty
- Export invoices matched to inward remittances
- Cost per head by function and cost centre
- Group reporting reconciled to Indian statutory books
Who it suits
Written for, and not the right fit for
- You need transfer-pricing documentation certified or the accountant's report signed; an independently engaged CA does that.
- You want an advance pricing agreement negotiated; that is work for a licensed tax professional, which we support with data.
- Mid-market capability centres serving an overseas parent on a cost-plus service fee.
- Centres with a small local finance team that takes direction from the parent's finance function.
- Groups setting up or expanding an Indian centre that want the intercompany model right from the start.
Services
Services this work draws on
Outsourced accounting
Your books kept current and reconciled, closed to a published calendar.
Explore service ↗GST, TDS and tax compliance
GST, TDS and income-tax prepared from reconciled data, not a working file.
Explore service ↗SEZ and foreign trade advisory
SEZ, EOU and export scheme records kept continuously, not at assessment.
Explore service ↗MIS and financial planning
Reporting built around the questions you actually need answered.
Explore service ↗Payroll and labour compliance
Every payroll cycle reconciled, with the statutory workflow attached.
Explore service ↗Every other service, also available in this trade
Common questions
Questions owners in this trade ask
What markup should a capability centre charge its parent?
That's a transfer-pricing question for the licensed professional who prepares your documentation, and it depends on the functions, assets and risks of the centre. We make sure whatever markup is agreed is applied to a complete cost base and supported by the records.
Do stock options granted by the parent belong in our cost base?
They're often relevant, because they're a cost of the people working in India. How they're recorded and whether they're marked up depends on the arrangement and should be agreed with your transfer-pricing professional. We capture the data so the decision can be applied.
Can you report to our parent in its own format?
Yes. We map the Indian books to the parent's chart of accounts and calendar, so the group receives its pack on time and the Indian statutory accounts reconcile to it.
5th Quadrant maintains the cost base, intercompany reconciliations and the transfer-pricing working file. Transfer-pricing documentation, the accountant's transfer-pricing report, the statutory audit and any prescribed certification are prepared or signed by an independently engaged licensed professional, coordinated through 5th Quadrant. Full detail is on our Professional Scope page.
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