Reasonably anticipated benefits. Controlled parties A and B enter into a cost sharing arrangement to develop product and process intangibles for an already existing Product P. Without such intangibles, A and B would each reasonably anticipate revenue, in present value terms, of $100M from sales of Product P until it became obsolete. With the intangibles, A and B each reasonably anticipate selling the same number of units each year, but reasonably anticipate that the price will be higher. Because the particular product intangible is more highly regarded in A’s market, A reasonably anticipates an increase of $20M in present value revenue from the product intangible, while B reasonably anticipates only an increase of $10M. Further, A and B each reasonably anticipate spending an extra $5M present value in production costs to include the feature embodying the product intangible. Finally, A and B each reasonably anticipate saving $2M present value in production costs by using the process intangible. A and B reasonably anticipate no other economic effects from exploiting the cost shared intangibles. A’s reasonably anticipated benefits from exploiting the cost shared intangibles equal its reasonably anticipated increase in revenue ($20M) plus its reasonably anticipated cost savings ($2M) minus its reasonably anticipated increased costs ($5M), which equals $17M. Similarly, B’s reasonably anticipated benefits from exploiting the cost shared intangibles equal its reasonably anticipated increase in revenue ($10M) plus its reasonably anticipated cost savings ($2M) minus its reasonably anticipated increased costs ($5M), which equals $7M. Thus A’s reasonably anticipated benefits are $17M and B’s reasonably anticipated benefits are $7M ...

Cost shared intangible. The facts are the same as in Example 3, except that in the course of developing XYZ, the controlled participants by accident discover ABC, a cure for disease D. ABC is a cost shared intangible under the CSA ...

Cost shared intangible, reasonably anticipated cost shared intangible. U.S. Parent (USP) has developed and currently exploits an antihistamine, XY, which is manufactured in tablet form. USP enters into a CSA with its wholly-owned foreign subsidiary (FS) to develop XYZ, a new improved version of XY that will be manufactured as a nasal spray. Work under the CSA is fully devoted to developing XYZ, and XYZ is developed. During the development period, XYZ is a reasonably anticipated cost shared intangible under the CSA. Once developed, XYZ is a cost shared intangible under the CSA ...

Controlled participants. (i) U.S. Parent (USP), one foreign subsidiary (FS), and a second foreign subsidiary constituting the group’s research arm (R + D) enter into a CSA to develop manufacturing intangibles for a new product line A. USP and FS are assigned the exclusive rights to exploit the intangibles respectively in the United States and the rest of the world, where each presently manufactures and sells various existing product lines. R + D is not assigned any rights to exploit the intangibles. R + D’s activity consists solely in carrying out research for the group. It is reliably projected that the RAB shares of USP and FS will be 662⁄3% and 331⁄3%, respectively, and the parties’ agreement provides that USP and FS will reimburse 662⁄3% and 331⁄3%, respectively, of the IDCs incurred by R + D with respect to the new intangible. (ii) R + D does not qualify as a controlled participant within the meaning of paragraph (j)(1)(i) of this section, because it will not derive any benefits from exploiting cost shared intangibles. Therefore, R + D is treated as a service provider for purposes of this section and must receive arm’s length consideration for the assistance it is deemed to provide to USP and FS, under the rules of paragraph (a)(3) of this section and §§ 1.482-4(f)(3)(iii) and (4), and 1.482-9, as appropriate. Such consideration must be treated as IDCs incurred by USP and FS in proportion to their RAB shares (that is, 662⁄3% and 331⁄3%, respectively). R + D will not be considered to bear any share of the IDCs under the arrangement ...

Controlled participant. Foreign Parent (FP) is a foreign corporation engaged in the extraction of a natural resource. FP has a U.S. subsidiary (USS) to which FP sells supplies of this resource for sale in the United States. FP enters into a CSA with USS to develop a new machine to extract the natural resource. The machine uses a new extraction process that will be patented in the United States and in other countries. The CSA provides that USS will receive the rights to exploit the machine in the extraction of the natural resource in the United States, and FP will receive the rights in the rest of the world. This resource does not, however, exist in the United States. Despite the fact that USS has received the right to exploit this process in the United States, USS is not a controlled participant because it will not derive a benefit from exploiting the intangible developed under the CSA ...

The following examples illustrate certain definitions in paragraph (j)(1)(i) of this section: ...

For purposes of this section – Term Definition Main cross references Acquisition price § 1.482-7(g)(5)(i). Adjusted acquisition price § 1.482-7(g)(5)(iii). Adjusted average market capitalization § 1.482-7(g)(6)(iv). Adjusted benefit shares § 1.482-7(i)(2)(ii)(A). Adjusted RPSM § 1.482-7(i)(6)(v)(B). Adjustment Year § 1.482-7(i)(6)(i). ADR § 1.482-7(i)(6)(iv). AERR § 1.482-7(i)(6)(iii). Applicable Method § 1.482-7(g)(2)(ix)(A). Average market capitalization § 1.482-7(g)(6)(iii). Benefits Benefits mean the sum of additional revenue generated, plus cost savings, minus any cost increases from exploiting cost shared intangibles. § 1.482-7(e)(1)(i). Capability variation § 1.482-7(f)(3). Change in participation under a CSA § 1.482-7(f). Consolidated group § 1.482-7(j)(2)(i). Contingent payments § 1.482-7(h)(2)(i)(B). Controlled participant Controlled participant means a controlled taxpayer, as defined under § 1.482-1(i)(5), that is a party to the contractual agreement that underlies the CSA, and that reasonably anticipates that it will derive benefits, as defined in paragraph (e)(1)(i) of this section, from exploiting one or more cost shared intangibles. § 1.482-7(a)(1). Controlled transfer of interests § 1.482-7(f)(2). Cost contribution § 1.482-7(d)(4). Cost shared intangible Cost shared intangible means any intangible, within the meaning of § 1.482-4(b), that is developed by the IDA, including any portion of such intangible that reflects a platform contribution. Therefore, an intangible developed by the IDA is a cost shared intangible even though the intangible was not always or was never a reasonably anticipated cost shared intangible. § 1.482-7(b). Cost sharing alternative § 1.482-7(g)(4)(i)(B). Cost sharing arrangement or CSA § 1.482-7(a), (b). Cost sharing transactions or CSTs § 1.482-7(a)(1), (b)(1)(i). Cross operating contributions A cross operating contribution is any resource or capability or right, other than a platform contribution, that a controlled participant has developed, maintained, or acquired prior to the CSA Start Date, or subsequent to the CSA start date by means other than operating cost contributions or cost contributions, that is reasonably anticipated to contribute to the CSA Activity within another controlled participant’s division. § 1.482-7(a)(3)(iii), (g)(2)(iv). CSA Activity CSA Activity is the activity of developing and exploiting cost shared intangibles. § 1.482-7(c)(2)(i). CSA Start Date The CSA Start Date is the earlier of the date of the CSA contract or the first occurrence of any IDC to which the CSA applies, in accordance with § 1.482-7(k)(1)(iii). § 1.482-7(i)(6)(iii)(B) and (k)(1)(ii) and (iii). CST Payments § 1.482-7(b)(1). Date of PCT § 1.482-7(b)(3). Determination Date § 1.482-7(i)(6)(i). Differential income stream § 1.482-7(g)(4)(vi)(F)(2). Division Division means the territory or other division that serves as the basis of the division of interests under the CSA in the cost shared intangibles pursuant to § 1.482-7(b)(4). See definitions of divisional profit or loss, operating contribution, and operating cost contribution. Divisional interest § 1.482-7(b)(1)(iii), (b)(4). Divisional profit or loss Divisional profit or loss means the operating profit or loss as separately earned by each controlled participant in its division from the CSA Activity, determined before any expense (including amortization) on account of cost contributions, operating cost contributions, routine platform and operating contributions, nonroutine contributions (including platform and operating contributions), and tax. § 1.482-7(g)(4)(iii). Fixed payments § 1.482-7(h)(2)(i)(A). Implied discount rate § 1.482-7(g)(2)(v)(B)(2). IDC share § 1.482-7(d)(4). Input parameters § 1.482-7(g)(2)(ix)(B). Intangible development activity or IDA § 1.482-7(d)(1). Intangible development costs or IDCs § 1.482-7(a)(1), (d)(1). Licensing alternative § 1.482-7(g)(4)(i)(C). Licensing payments Licensing payments means payments pursuant to the licensing obligations under the licensing alternative. § 1.482-7(g)(4)(iii). Make-or-sell rights § 1.482-7(c)(4), (g)(2)(iv). Market-based input parameter § 1.482-7(g)(2)(ix)(B). Market returns for routine contributions Market returns for routine contributions means returns determined by reference to the returns achieved by uncontrolled taxpayers engaged in activities similar to the relevant business activity in the controlled participant’s division, consistent with the methods described in §§ 1.482-3, 1.482-4, 1.482-5, or § 1.482-9(c) § 1.482-7(g)(4), (g)(7). Method payment form § 1.482-7(h)(3). Nonroutine contributions Nonroutine contributions means a controlled participant’s contributions to the relevant business activities that are not routine contributions. Nonroutine contributions ordinarily include both nonroutine platform contributions and nonroutine operating contributions used by controlled participants in the commercial exploitation of their interests in the cost shared intangibles (for example, marketing intangibles used by a controlled participant in its division to sell products that are based on the cost shared intangible). § 1.482-7(g). Nonroutine residual divisional profit or loss § 1.482-7(g)(7)(iii). Operating contributions An operating contribution is any resource or capability or right, other than a platform contribution, that a controlled participant has developed, maintained, or acquired prior to the CSA Start Date, or subsequent to the CSA Start Date by means other than operating cost contributions or cost contributions, that is reasonably anticipated to contribute to the CSA Activity within the controlled participant’s division. § 1.482-7(g)(2)(ii), (g)(4)(vi)(E), (g)(7)(iii)(A) and (C). Operating cost contributions Operating cost contributions means all costs in the ordinary course of business on or after the CSA Start Date that, based on analysis of the facts and circumstances, are directly identified with, or are reasonably allocable to, developing resources, capabilities, or rights (other than reasonably anticipated cost shared intangibles) that are reasonably anticipated to contribute to the CSA Activity within the controlled participant’s division. § 1.482-7(g)(2)(ii), (g)(4)(iii), (g)(7)(iii)(B). PCT Payee § 1.482-7(b)(1)(ii). PCT Payment § 1.482-7(b)(1)(ii). PCT Payor § 1.482-7(b)(1)(ii), (i)(6)(i). PCT Payor WACC § 1.482-7(i)(6)(iv)(D). Periodic adjustments § 1.482-7(i)(6)(i). Periodic Trigger § 1.482-7(i)(6)(i). Platform contribution transaction or PCT § 1.482-7(a)(2), (b)(1)(ii). Platform contributions § 1.482-7(c)(1). Post-tax income § 1.482-7(g)(2)(v)(B)(4), (g)(4)(i)(G). Pre-tax income § 1.482-7(g)(2)(v)(B)(4), (g)(4)(i)(G). Projected benefit shares § 1.482-7(i)(2)(ii)(A). PRRR § 1.482-7(i)(6)(ii). PVI § 1.482-7(i)(6)(iii)(C). PVTP § 1.482-7(i)(6)(iii)(B). Reasonably anticipated benefits A controlled participant’s reasonably anticipated benefits mean the benefits that reasonably may be anticipated to be derived from exploiting cost shared intangibles. For purposes of this definition, benefits mean the sum of additional revenue generated, plus cost savings, minus any cost increases from exploiting cost shared intangibles. § 1.482-7(e)(1). Reasonably anticipated benefits or RAB shares § 1.482-7(a)(1), (e)(1). Reasonably anticipated cost shared intangible § 1.482-7(d)(1)(ii). Relevant business activity § 1.482-7(g)(7)(i). Routine contributions Routine contributions means a controlled participant’s contributions to the relevant business activities that are of the same or similar kind to those made by uncontrolled taxpayers involved in similar business activities for which it is possible to identify market returns. Routine contributions ordinarily include contributions of tangible property, services and intangibles that are generally owned by uncontrolled ...

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