Many corporate groups operate through multiple entities, at times involving more than one tax jurisdiction or in some instances between free zones and the mainland. It is not cost-effective to have teams for various support functions in each entity of the group.

A group operating in multiple countries will have a single team providing IT support to the group. Functions such as legal, accounting, finance, HR, payables, and R&D are usually centralized. The entity providing support services is referred to as a ‘service center’, and the entity availing the services as ‘service recipient’.

‘Cross charge’ is a mechanism whereby the costs incurred by the service center are recovered from the service recipient, generally based on an allocation key. In the case of IT support services, the costs incurred by the service center (hardware, software, and employee costs) may be allocated to other entities based on the number of tickets created. Similarly, costs incurred on the legal function may be allocated based on the time devoted by the legal team, or the costs incurred on the accounting function may be recovered based on the number of accounting entries passed.

source : https://gulfnews.com/