Shared services centre

What it means

A shared services centre provides support functions to several companies in a group from one place: accounting, payroll, invoicing, purchasing, IT support.

It differs from outsourcing in ownership: the centre belongs to the group rather than being an external provider. It is therefore a form of insourcing with concentrated capacity.

The centre can be a separate group company, a department of one company that also works for the others, or an organisational unit of a foreign company. The difference is not only formal: a separate company invoices and carries its own risks, a department is merely recharged and its costs show up in a single entity.

How it works in practice

It pays off above a certain volume, where the same work repeats across several companies. Standardised processes and written procedures (SOPs) are the precondition - without them the centre merely inherits several different ways of working.

Location is often settled through nearshoring. The relationship between the centre and the group companies is one between related parties, so recharges follow transfer pricing rules.

Even inside a group the centre needs an SLA: processing deadlines, scope of services and a unit price, for example per invoice or per employee on the payroll. Without one every subsidiary demands its own priority, and a transfer pricing review finds no basis showing what the recharged amount consists of.

What to watch out for

The saving only materialises with standardisation. If each company keeps its exceptions, the centre becomes slower and dearer than the back office it replaced - and further from the operation as well.

For VAT, recharging the centre’s services is an ordinary supply, even between sister companies. Without VAT group registration, domestic invoices carry VAT and cross-border ones fall under reverse charge; a company that merely allocates costs internally without an invoice risks an assessment and a penalty.