Example Of Cost Sharing Agreement

Finally, it should be noted that cost-sharing agreements may result in additional litigation between a subject and the IRS. In the example shown above, there is a clear distinction between the revenues received by the parent company on intangible assets prior to purchase and the revenues generated by the parent company and the portion of intangible capital expenditures after the cost-sharing agreement came into effect. In practice, it is often difficult to distinguish the revenues from these intangible assets that are obsolete over time. In this case, there are potentially difficult allocation problems in determining, for example, the amount of sub redemption gains attributable to the parent company`s intangible assets prior to the purchase. It is somewhat ironic: based on the discussions I had with IRS employees, one of the reasons the cash rules were changed to include cost-sharing agreements was to eliminate differences of opinion between irS and taxpayers on what a reasonable assessment of the market value of royalties on transferred intangible assets. Although cost-sharing agreements are able to eliminate many disputes with the tax authorities over intangible assets that were developed after the agreements came into force, they are leading to new disputes over the amount of buy-in payments. And as (1) buy-in payments are potentially very important – and are supposed to be based on the present value of all intangible preemption values – and (2) buy-in payments require the taxpayer to answer potentially controversial questions about the fraction of a party`s profits after the purchase due to intangible assets developed up to the redemption date , cost-sharing agreements have replaced a source of disagreement over intangible assets. 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.

(iii) service agreements (there is often compensation with a profit margin, while cost-sharing agreements are not entitled to profit, but only to reimbursement).