The Internal Revenue Service (IRS) maintains certain rules on how cost-sharing agreements within groups of companies should allocate costs. According to the IRS, a cost-sharing agreement is defined as an agreement under which the cost of developing intangible assets is shared in proportion to the reasonably expected benefits that each company will reap. These agreements include two or more participants; provide a methodology for calculating each controlled participant`s share of intangible development costs on the basis of factors that can reasonably be expected to reflect each participant`s share of the expected benefits; provide for adjustments by the controlled participant in intangible development costs to take account of changes in economic conditions and the activities and business practices of the participants; and in an up-to-date document containing detailed information on the details of the agreement. (B) Sales. The sales of each audited participant in business activities in which recognised intangible assets are realized can be used as an indirect basis to measure its expected benefits. This measurement basis will be more reliable to the extent that each audited participant is expected to experience a similar increase in net income or a decrease in net loss due to intangible assets covered per dollar of revenue. This circumstance is more likely to occur when the costs of using the covered intangible assets are not significant in relation to the income generated, or when the use of the covered intangible assets essentially leads to an increase in the income of the controlled participants (for example. B by a price premium on the products they sell) without significantly affecting their costs. The sales of each audited participant are unlikely to provide a reliable basis for measuring benefits unless each audited participant operates at the same market level (e.g. B, manufacturing, distribution, etc.). Gould cited the latter factor as particularly important for companies looking for efficient cost-sharing. “Computers have changed the [marketing] industry and created opportunities for partnership. Today`s computerized partnerships allow us to target qualified recipients and segment lists like never before.
Many of our alternative direct marketing programs traditionally take a broadcast approach and reach broadly defined segments. Now, partnerships offer qualified segmentation targeting narrower and more clearly defined lifestyle and demographic segments. Technical advances in printing and insertion also offer an improved way to personalize packaging and offering. (1) Services. Benefits are additional revenues generated by the use of covered intangible assets or cost savings. (ii) To account for USS` order backlog in the first year, the present present value of sales during the period is used as a basis for measuring benefits. Depending on the risk associated with this company, a discount rate of 10% is chosen. The present present value of projected revenues is approximately $154.4 million for USS and $158.9 million for PS. Based on this, USS and FP are expected to receive about 49.3% and 50.7% of the benefits, respectively, and the cost of developing the baldness treatment will be shared accordingly. However, many managers may be less familiar with how to sometimes reduce their tax bills by implementing a “cost-sharing agreement” between departments that deal with the internal transfer of intangible products or services. As the name suggests, a cost-sharing agreement between, for example, a U.S.-based parent division and a foreign-based subsidiary determines how the cost of intangible assets developed by the parent company and subcontractor should be allocated between them. Typical examples of such intangible assets are a company`s specialized production methods, license fees for the manufacture of products, and marketing techniques.
(4) References. Subparagraph (c) of this section defines the participant. Point (d) of this section defines the costs of intangible development. Subparagraph (e) of this section defines the expected benefits of intangible development. Point (f) of this Section contains rules for the allocation of costs. Point (g) of this Section sets out the rules for the transfer of intangible assets which are not considered as consideration for the assumption of a share of the development costs of the intangible asset. The rules on the type of payments made under a cost-sharing arrangement with reservations are set out in point (h) of this Section. Paragraph (i) of this section contains accounting standards. Paragraph (j) of this section contains administrative requirements.
Paragraph (k) of this section contains a date of entry into force. Subparagraph (l) contains a transitional rule. However, the Federal Office published several replies stipulating that a tax should be levied on these transfers (Solução de Consulta Disit/SRRF09 No. 9026 of 29 August 2018). However, it seems to me that this interpretation is more related to the present case, since it theoretically meets the requirements of an effective cost-sharing agreement. .