Shared service centers in SMEs: structure for greater efficiency

What has long been established in corporate groups is increasingly becoming a strategic issue in the upper SME sector: the targeted development of central service functions in the form of a shared service center (SSC).

Particularly in growing corporate groups with several companies or locations, it is not just about efficiency gains, but also about structure, accountability and a reliable business basis for internal performance ratios.

A shared service center creates transparency, strengthens management capability and helps to reasonably pool human and financial resources.

Structural development necessitates centralized services

Many medium-sized companies start out with one operating company; over time, however, they grow into a group of companies with several units, shareholdings or foreign locations.

What often goes unnoticed: Central services – such as accounting, HR management, IT or purchasing – continue to be provided informally from the head office, without any organizational or contractual separation.

As a result, services flow into subsidiaries without being charged. The business results of individual companies are distorted. At the same time, effort and responsibility remain at central locations - without any cost relief or organizational visibility.

Typical functions in the Shared Service Center

A Shared Service Center is not a rigid model, but rather represents those services that are provided centrally and used for several companies. These often include:

• Finance and accounting
• HR management and payroll accounting
• Basic IT services and support
• Purchasing and contract management
• Data protection coordination, internal compliance
• Basic legal issues or tax coordination
• Travel expense and fleet management

The decisive factor is not the number of functions, but the clear demarcation, responsibility and accounting – in relation to the user units and in the interests of the Group as a whole.

Transparent allocations and tax recognition

A key objective of the Shared Service Center is the transparent cost allocation for internal services – both from a business and tax perspective.

Proper cost allocation shows which units use which services, makes their costs visible and helps to realistically assess the individual companies’ profitability.

For tax purposes, it is crucial that the costs are allocated on the basis of clear, written contracts and that the remuneration stands up to arm's length comparison. If there is a lack of documentation or the calculation is not economically comprehensible, corrections may be necessary during tax audits or in international structures – particularly in the context of intra-group transfer prices.

Better utilization of human resources

In addition to cost and performance transparency, a shared service center also contributes to better utilization of human resources.

Especially in times of limited specialist capacities, it is not realistic for many companies to provide every company with its own HR or accounting staff.

Bundling allows to pool activities, increase professionalism and better map substitution arrangements. Employees can be developed and assigned in a more targeted manner, processes become more efficient and quality increases measurably – without operational units losing flexibility.

Organizational and legal implementation

In practice, a shared service center in SMEs is often set up as a separate GmbH within the group of companies – especially if there are several operating GmbHs or a holding structure is in place.

This legal independence offers advantages: it creates clear contractual relationships, enables a tax-compliant cost allocation and reduces the liability risk.

Alternatively, the shared service center can also be managed as a central department within an existing company. In any case, the decisive factor is that services, responsibilities and accounting rules must be regulated in a binding manner. Contracts, internal service level agreements (SLAs) and an ongoing economic review are essential.

Conclusion

A shared service center is not a purely administrative model, but a strategic building block for corporate management.

It creates clarity about performance, promotes business comparability within the Group, makes more targeted use of human resources and reduces tax risks.
Particularly in growing corporate groups, it offers the opportunity to harmonize structures and efficiency – without overburdening operational units or allowing central functions to disappear into the background.

A structured set-up that is legally well regulated and economically viable is the key to success. Especially at the interface between tax recognition, internal cost allocation and contract design, a close connection between tax and legal expertise is crucial.