TPG2022 Chapter VIII paragraph 8.14

Category: C. Applying the arm’s length principle | Tag: , ,
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Because the concept of mutual benefit is fundamental to a CCA, it follows that a party may not be considered a participant if the party does not have a reasonable expectation that it will benefit from the objectives of the CCA activity itself (and not just from performing part or all of the subject activity), for example, from exploiting its interest or rights in the intangibles or tangible assets, or from the use of the services produced through the CCA. A participant therefore must be assigned an interest or rights in the intangibles, tangible assets or services that are the subject of the CCA, and have a reasonable expectation of being able to benefit from that interest or those rights. An enterprise that solely performs the subject activity, for example performing research functions, but does not receive an interest in the output of the CCA, would not be considered a participant in the CCA but rather a service provider to the CCA. As such, it should be compensated for the services it provides on an arm’s length basis external to the CCA. See paragraph 8.18. Similarly, a party would not be a participant in a CCA if it is not capable of exploiting the output of the CCA in its own business in any manner.






Related Guidelines

  1. TPG2022 Chapter VIII paragraph 8.6Some benefits of the CCA activity can be determined in advance, whereas others will be uncertain. Some types of CCA activities will produce current benefits, while others have a longer time frame or may not be successful. Nevertheless, in a CCA there is...
  2. TPG2022 Chapter VIII paragraph 8.7In some cases CCAs can provide helpful simplification of multiple transactions (bearing in mind that the tax consequences of transactions are determined in accordance with applicable local laws). In a situation where associated enterprises both perform activities for other group members and simultaneously...
  3. TPG2022 Chapter VIII paragraph 8.51The 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...
  4. TPG2022 Chapter VIII paragraph 8.45The 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...
  5. TPG2022 Chapter VIII paragraph 8.12For the conditions of a CCA to satisfy the arm’s length principle, the value of participants’ contributions must be consistent with what independent enterprises would have agreed to contribute under comparable circumstances given their proportionate share of the total anticipated benefits they reasonably...
  6. TPG2022 Chapter VIII paragraph 8.40As indicated in paragraph 8.33, the guidance in Chapter VI on hard-to-value intangibles may equally apply in situations involving CCAs. This will be the case if the objective of the CCA is to develop a new intangible that is hard to value at...
  7. TPG2022 Chapter VIII paragraph 8.46Similar 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...
  8. TPG2022 Chapter VIII paragraph 8.31For development CCAs, contributions in the form of controlling and managing the CCA, its activities and risks, are likely to be important functions, as described in paragraph 6.56, in relation to the development, production, or obtaining of the intangibles or tangible assets and...
  1. 2022: ATO Taxpayer Alert on Treaty shopping arrangements to obtain reduced withholding tax rates (TA 2022/2)The ATO is currently reviewing treaty shopping arrangements designed to obtain the benefit of a reduced withholding tax (WHT) rate under a double-tax agreement (DTA) in relation to royalty or dividend payments from Australia. Typically, this benefit is sought via the interposition of one...
  2. April 2013: Draft Handbook on Transfer Pricing Risk AssessmentThe 2013 Draft Handbook on Transfer Pricing Risk Assessment is a detailed, practical resource that countries can follow in developing their own risk assessment approaches. The handbook supplements useful materials already available with respect to transfer pricing risk assessment. The OECD Forum on...

Related Case Law

  1. US vs. Xilinex Inc, August 2005In a decision the IRS found that Xilinx should have allocated stock option costs for foreign subsidiary research and development employees as part of its Section 482-7 cost-sharing agreement calculation. In this decision, the United States Tax Court overruled the IRS, finding that...
  2. Spain vs EPSON IBÉRICA S.A.U., Feb 2018, High Court, Case No 314/2016EPSON IBÉRICA S.A.U. had deducted the full employee pension costs of a CEO that had worked both for the HQ in the Netherlands and the local Spanish Company. The tax authorities issued an assessment where 90% of the pension costs had been disallowed...
  3. Taiwan vs Intracom, November 2018, Supreme Administrative Court, Case No 691 of 107Intracom Taiwan had deducted losses on intra-group receivables and management fees in its taxable income. These deductions had been partially denied by the Taiwanese tax administration due to lack of documentation and economic substance. Intracom brought the case to court. The Supreme Administrative...
  4. Italy vs NEOPOST ITALIA s.r.l. (QUADIENT ITALY s.r.l.), September 2021, Supreme Court, Case No 25025/2021Neopost Italia s.r.l. had paid service fees and royalties to its French parent. Following an audit, deductions for these intra-group transactions was adjusted by the tax authorities due to non compliance with the arm’s length principle and lack of documentation. However, for the...