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Journal > Sample Cost Contribution Agreement

Sample Cost Contribution Agreement

April 12th, 2021

B.6.2.1 The main feature of CCCs is that participants agree to share the proportionate costs of creating or acquiring tangible assets, creating or acquiring intangible assets or providing services. They therefore agree to have tangible, intangible assets or services in proportion to tangible, intangible or services created by the CCA. Participants should therefore share the benefits in a manner consistent with their contributions to the CCA. The predictability of the benefits of participating in CCAs varies. In some CCPs, the benefits of pre-departure may be predictable, but in other cases there may be uncertainties about results. For example, it may be very uncertain whether research and development will lead to the creation of intangible assets such as patents, know-how or computer software. In terms of services, due to some unforeseen contingencies, a CCA may not offer the foreseeable benefits of economies of scale. B.6.4.3. There is a difference between current and existing contributions.

For example, the contribution of patented pre-existing value technologies, useful for the development of intangible value that is the subject of the CCA, or the contribution of a material asset acquired by one of the participants some time before the start of a CCA. Contributions to the existing value of tangible and intangible assets should be assessed on a lifetime basis in this Chapter B.5 manual. If the value of a participant`s share of all contributions under a CCA does not match that participant`s share of the expected benefits, the arm length principle would require an adjustment of the contribution by compensation. B.6.1.1. This chapter contains guidelines on the use of cost-contribution plans (CCAs) and the application of the arm length principle to CCAs for transfer pricing purposes. CCCs are contractual agreements between companies associated with a multinational group, in which participants share certain costs and risks in exchange for a reasonable interest in the expected outcomes of the CCA. CCAs may also include independent parties. CCCs can be used for a variety of purposes, such as acquiring or creating tangible assets, acquiring or creating intangible assets, and providing intra-group services. With respect to intangible assets, the CCA will present the interests of each participant to the intangible assets to be developed. For services, the CCA determines what services each participant can receive. With respect to CCMs, which relate to tangible assets, the CCA determines the interests of each member of tangible assets.

B.6.6.7. A tax authority may conclude that a participant is unlikely to have the benefit of a CCA or that the expected benefits would be trivial, particularly if their contributions are significant. In this case, a tax authority may conclude that the agreement is not in accordance with the principle of arm length (since an independent company would not participate in such an agreement) and may therefore ignore the CCA. B.6.5.4. For some CCAs, z.B. for the development of intangible assets, the benefits of the CCA will be realized in the future and the gap between start and realization can be considerable. As a result, it can be difficult to measure the expected research and development benefits of CCAs. Discounted income or cash flow methods are frequently used (see points B.5.6.8 and below, Chapter B.5). Under the arm length principle, a participant`s contributions to a CCA must be consistent with their share of the expected benefits. This requires a direct convergence of a participant`s expected benefits and assurance that their contributions reflect the expected benefits.

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