Cost Sharing Agreement Tax

The crucial point is that this required buy-in payment has nothing to do with the appropriateness of the cost-sharing agreement. In the absence of a cost-sharing agreement, the Under would be required to make an annual payment of $30 million for the party`s revenues generated by the parent company`s intangible assets prior to the purchase of assets. Since the present value of these payments is $300 million, the same amount as the buy-in amount, the amount (the present value of payments) that the party made under this intangible pre-purchase account is not affected, whether or not the parent company and the cost-sharing agreement have been concluded. Since subs repurchase payments to the parent company are reduced despite the party`s obligation to pay the buy-in, the cost-sharing agreement will remain attractive. Under such conditions, there are still doubts and controversies. However, if there is an effective cost-sharing agreement with the respective controls, we believe that, whether by decision of the Federal Finance Tribunal, the administration or the court, there will be the impossibility of taxation. The cost-sharing agreement is generally the result of the need for optimization, efficiency, cost reduction and performance standardization. Within an economic group, a parent company or a company created for this purpose (a common service centre) can agree on the cooperation of certain aspects. This may include the distribution of expenses and costs resulting from activities not related to the core business, such as accounting, marketing and legal services, as well as research and development. In summary, cost-sharing agreements have the potential to significantly reduce a taxpayer`s tax debt.

Are there situations that reduce their desire? If the revenues from the evolution of intangible assets are uncertain – and the market value of intangible assets is less than their development costs – a cost-sharing agreement is not desired. Cost-sharing agreements may also be unattractive if most of a company`s intangible assets are developed by a subsidiary operating in a low-tax sector. In this case, the U.S. parent company would be required to make a subfund payment for the parent company`s share in the cost of intangible assets developed by underdevelopment. This is less desirable than the (generally higher) use of market-based transfer prices, because in this case, market-based transfer prices would have the advantage of transferring a higher share of the taxpayer`s world income to a lower tax sovereignty of the party than a cost-sharing agreement.