For purposes of this paragraph (g)(4), any routine contributions that are platform or operating contributions, the valuation and PCT Payments for which are determined and made independently of the income method, are treated similarly to cost contributions and operating cost contributions, respectively. Accordingly, wherever used in this paragraph (g)(4), the term “routine contributions” shall not include routine platform or operating contributions, and wherever the terms “cost contributions” and “operating cost contributions” appear in this paragraph, they shall include net routine platform contributions and net routine operating contributions, respectively. Net routine platform contributions are the value of a controlled participant’s total reasonably anticipated routine platform contributions, plus its reasonably anticipated PCT Payments to other controlled participants in respect of their routine platform contributions, minus the reasonably anticipated PCT Payments it is to receive from other controlled participants in respect of its routine platform contributions. Net routine operating contributions are the value of a controlled participant’s total reasonably anticipated routine operating contributions, plus its reasonably anticipated arm’s length compensation to other controlled participants in respect of their routine operating contributions, minus the reasonably anticipated arm’s length compensation it is to receive from other controlled participants in respect of its routine operating contributions ...

If at any time (during the term, or upon or after the termination, of a CSA) a controlled participant transfers an interest in a cost shared intangible to another controlled taxpayer, the controlled participant must receive an arm’s length amount of consideration from the transferee under the rules of §§ 1.482-4 through 1.482-6 as supplemented by paragraph (f)(4) of this section regarding arm’s length consideration for a change in participation. For this purpose, a capability variation described in paragraph (f)(3) of this section is considered to be a controlled transfer of interests in cost shared intangibles ...

If a controlled taxpayer that is not a controlled participant contributes to developing a cost shared intangible, as defined in section (j)(1)(i) of this section, it must receive consideration from the controlled participants under the rules of § 1.482-4(f)(4) (Contribution to the value of an intangible owned by another). Such consideration will be treated as an intangible development cost for purposes of paragraph (d) of this section ...

Whatever the allocation method, adjustments to the measure used may be necessary to account for differences in the expected benefits to be received by the participants, e.g. in the timing of their expected benefits, whether their rights are exclusive, the different risks associated with their receipt of benefits, etc. The allocation key most relevant to any particular CCA may change over time. If an arrangement covers multiple activities, it will be important to take this into account in choosing an allocation method, so that the contributions being allocated are properly related to the benefits expected by the participants. One approach (though not the only one) is to use more than one allocation key. For example, if there are five participants in a CCA, one of which cannot benefit from certain research activities undertaken within the CCA, then in the absence of some form of set-off or reduction in contribution the costs associated with those activities might be allocated only to the other four participants. In this case, two allocation keys might be used to allocate the costs. Also, exchange of information between treaty partners, the mutual agreement procedure, and bilateral or multilateral advance pricing arrangements may help establish the acceptability of the method of allocation ...

In estimating the relative expected benefits accruing from R&D directed towards the development of a new product line or process, one measure sometimes used by businesses is the projected sales of the new product line or projected stream of royalties to be received from licensing the new process. This example is for illustration only and it is not intended to suggest a preference for the use of sales data for any particular case. Whatever the indicator, if benefits are expected to be realised in the future, care must be taken to ensure that any current data used are a reliable indicator of the future pattern of shares of benefits ...

To the extent that a material part or all of the benefits of a CCA activity are expected to be realised in the future and not currently, the allocation of contributions will take account of projections about the participants’ shares of those benefits. Use of projections may raise problems for tax administrations in verifying that such projections have been made in good faith and in dealing with cases where the projections vary markedly from the actual results. The problems may be exacerbated where the CCA activity ends several years before expected benefits actually materialise. It may be appropriate, particularly where benefits are expected to be realised in the future, for a CCA to provide for possible adjustments of proportionate shares of contributions over the term of the CCA on a prospective basis to reflect changes in relevant circumstances resulting in changes in shares of benefits. In situations where actual results differ markedly from projections, tax administrations might be prompted to inquire whether the projections made would have been considered acceptable by independent enterprises in comparable circumstances, taking into account all the developments that were reasonably foreseeable by the participants, without using hindsight ...

There is no rule that could be universally applied to determine whether each participant’s proportionate share of the overall contributions to a CCA activity is consistent with the participant’s proportionate share of the overall benefits expected to be received under the arrangement. The goal is to estimate the shares of benefits expected to be obtained by each participant and to allocate contributions in the same proportions. The shares of expected benefits might be estimated based on the anticipated additional income generated or costs saved by each participant as a result of the arrangement. Other techniques to estimate expected benefits (e.g. using the price charged in sales of comparable assets and services) may be helpful in some cases. Another approach that is frequently used in practice would be to reflect the participants’ proportionate shares of expected benefits by using an allocation key. The possibilities for allocation keys include sales, units used, produced, or sold, gross or operating profit, the number of employees, capital invested, and so forth. Whether any particular allocation key is appropriate depends on the nature of the CCA activity and the relationship between the allocation key and the expected benefits ...

Balancing payments may be required to adjust participants’ proportionate shares of contributions. A balancing payment increases the value of the contributions of the payer and decreases the value of the contributions of the payee by the amount of the payment. Balancing payments should maintain the arm’s length condition that each participant’s proportionate share of the overall contributions be consistent with its proportionate share of the overall expected benefits to be received under the arrangement. For the tax treatment of balancing payments, see paragraph 8.25 below ...

In measuring a participant’s contribution, there is an issue regarding any savings arising from subsidies or tax incentives (including credits on investments) that may be granted by a government. Whether and if so to what extent these savings should be taken into account in measuring the value of a participant’s contribution depends upon whether independent enterprises would have done so in comparable circumstances ...

It is important that the evaluation process recognises all contributions made by participants to the arrangement, including property or services that are used partly in the CCA activity and also partly in the participant’s separate business activities. It can be difficult to measure contributions that involve shared property or services, for example where a participant contributes the partial use of capital assets such as buildings and machines or performs supervisory, clerical, and administrative functions for the CCA and for its own business. It will be necessary to determine the proportion of the assets used or services that relate to the CCA activity in a commercially justifiable way with regard to recognised accounting principles and the actual facts, and adjustments, if material, may be necessary to achieve consistency when different jurisdictions are involved. Once the proportion is determined, the contribution can be measured in accordance with the principles in the rest of the chapter ...

No specific result can be provided for all situations, but rather the questions must be resolved on a case-by-case basis, consistent with the general operation of the arm’s length principle. Countries have experience both with the use of costs and with the use of market prices for the purposes of measuring the value of contributions to arm’s length CCAs. It is unlikely to be a straightforward matter to determine the relative value of each participant’s contribution except where all contributions are made wholly in cash, for example, where the activity is being carried on by an external service provider and the costs are jointly funded by all participants ...

Under the arm’s length principle, the value of each participant’s contribution should be consistent with the value that independent enterprises would have assigned to that contribution in comparable circumstances. Therefore, in determining the value of contributions to a CCA the guidance in Chapters I through VII of these Guidelines should be followed. For example, as indicated in Chapter I of these Guidelines, the application of the arm’s length principle would take into account, inter alia, the contractual terms and economic circumstances particular to the CCA, e.g. the sharing of risks and costs ...

For the purpose of determining whether a CCA satisfies the arm’s length principle – i.e. whether each participant’s proportionate share of the overall contributions to the CCA is consistent with the participant’s proportionate share of the overall expected benefits – it is necessary to measure the value or amount of each participant’s contributions to the arrangement ...