Category: TPG2017 Chapter VIII: Cost Contribution Arrangements

TPG2017 Chapter VIII paragraph 8.53

Over the duration of the CCA term, the following information could be useful: a) any change to the arrangement (e.g. in terms, participants, subject activity), and the consequences of such change b) a comparison between projections used to determine the share of expected benefits from the CCA activity with the actual share of benefits (however, regard should be had to paragraph 3.74) c) the annual expenditure incurred in conducting the CCA activity, the form and […]

TPG2017 Chapter VIII paragraph 8.52

The following information would be relevant and useful concerning the initial terms of the CCA: a) a list of participants b) a list of any other associated enterprises that will be involved with the CCA activity or that are expected to exploit or use the results of the subject activity c) the scope of the activities and specific projects covered by the CCA, and how the CCA activities are managed and controlled d) the duration […]

TPG2017 Chapter VIII paragraph 8.51

The transfer pricing documentation standard set out in Chapter V requires reporting under the master file of important service arrangements and important agreements related to intangibles, including CCAs. The local file requires transactional information including a description of the transactions, the amounts of payments and receipts, identification of the associated enterprises involved, copies of material intercompany agreements, and pricing information including a description of reasons for concluding that the transactions were priced on an arm’s […]

TPG2017 Chapter VIII paragraph 8.50

8.50 Generally, a CCA between controlled parties should meet the following conditions: a) The participants would include only enterprises expected to derive mutual and proportionate benefits from the CCA activity itself (and not just from performing part or all of that activity). See paragraph 8.14. b) The arrangement would specify the nature and extent of each participant’s interest in the results of the CCA activity, as well its expected respective share of benefits. c) No […]

TPG2017 Chapter VIII paragraph 8.49

When a CCA terminates, the arm’s length principle requires that each participant retains an interest in the results, if any, of the CCA activity consistent with their proportionate share of contributions to the CCA throughout its term (adjusted by any balancing payments actually made, including those made as a result of the termination), or is appropriately compensated for any transfer of that interest to other participants.

TPG2017 Chapter VIII paragraph 8.48

Buy-in and buy-out payments should be treated for tax purposes in the same manner as would apply under the general rules of the tax system(s) (including conventions for the avoidance of double taxation) applicable to the respective participants as if the payment were made outside a CCA as consideration for the acquisition or disposal of the interest in the results of the prior CCA activity.

TPG2017 Chapter VIII paragraph 8.47

The guidance in Chapters I – III and Chapter VI is fully applicable to determining the arm’s length amount of any buy-in, buy-out or balancing payments required. There may be instances where no such payments are required under the arm’s length principle. For example, a CCA for the sharing of administrative services would generally only produce benefits to participants on a current basis, rather than any valuable on-going results.

TPG2017 Chapter VIII paragraph 8.46

Similar issues could arise when a participant leaves a CCA. In particular, a participant that leaves a CCA may dispose of its interest in the results, if any, of past CCA activity (including work in progress) to the other participants. Any such transfer should be compensated according to the arm’s length principle. Such compensation is referred to in this chapter as a “buy-out payment”.

TPG2017 Chapter VIII paragraph 8.45

The amount of a buy-in payment should be determined based upon the value (i.e. the arm’s length price) of the interest in the intangibles and/or tangible assets the new entrant obtains, taking into account the new entrant’s proportionate share of the overall expected benefits to be received under the CCA. There may also be cases where a new participant brings existing intangibles or tangible assets to the CCA, and that balancing payments may be appropriate […]

TPG2017 Chapter VIII paragraph 8.44

Changes in the membership of a CCA will generally trigger a reassessment of the proportionate shares of participants’ contributions and expected benefits. An entity that becomes a participant in an already active CCA might obtain an interest in any results of prior CCA activity, such as completed or work-in-progress intangibles or tangible assets. In such cases, the previous participants effectively transfer part of their respective interests in the results of the prior CCA activity to […]

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