The Cost-Plus model is mainly used in two scenarios.
The entity which serves as the group’s headquarters, provides the related services, such as management services, administration services, or a combination of both to its subsidiaries.
Note: There are cases where subsidiaries are providing management or admin services to the parent company or other entities in the group.
One subsidiary in the group provides specific services, typically to the parent company or headquarters or the regional headquarter.
When to use this model?
For intercompany services. The transactions are typically provided by either the subsidiaries as a service to their parent (principal company) /regional headquarter or by the parent/regional headquarter to their subsidiaries in a form of management services, administration services or combination of both.
When not to use this model?
When the service provider provides similar service to unrelated parties or when the recipient receives similar service from unrelated parties. High level of similarity typically includes similarity in the nature of the service, volume, different geographical markets, contractual terms (service liability, scope of service, payment terms).