[…] there is no possibility of confusing « refund » and « service » institutions because they have different legal natures, and it is not fair to talk about the taxation of refunds for fees made available to the parent company by the parent company, which is not compensation for the provision of services, but a simple reimbursement of expenses. If we have never heard of cost-sharing systems, it seems almost too good to be true. You would think that there is a catch that was not mentioned in the example that, in practice, would reduce the value that businesses get by putting in place cost-sharing systems. There is one element that is not included in the previous discussion: buy-in, but it will not prevent companies from entering into cost-sharing agreements. In a typical relationship between a parent and a sub, where the parent company develops most of the intangible assets used by the two companies, it is unlikely that the parent company will begin to develop intangible assets until after a cost-sharing agreement is reached with the money. Instead, the parent company will have delivered material assets to the sub – such as the use of the parent company`s brand, marketing know-how and production technology – throughout the subs` existence. Intangible assets provided by the parent to its sub-company prior to the construction of a cost-sharing agreement are identified as their intangible assets prior to the purchase. In the typical situation in which a parent has developed these intangible pre-emption values in the name of the sub, the subcontractor must make a one-time payment to the parent company – the purchase payment – on the date the cost-sharing agreement takes effect, up to the estimated market value of the portion of the intangible assets before the purchase (calculated from the date the cost-sharing agreement takes effect). This buy-in payment is taxable income of the parent company and tax deductible for the subcontractor.
Cost-sharing contracts provide a unique opportunity to increase cash flow, reduce tax bases and set up contingencies for cost allocation between businesses. A cost-sharing agreement should never be taken lightly. PIASCIK, the largest international tax firm south of D.C. and north of Charlotte, NC, provides competent advice on cost-sharing agreements with clients in more than 49 countries. The topic continues to move forward, in the sense that many advocates of the appropriateness of the impact of FRRs in cost-shared transactions believe that these transactions can be characterized as service delivery – an inconsistent definition, as has already been said above. The same is true of cost-sharing agreements, which are widespread among multinationals. Often, a company of the same economic group, based abroad, is the one that centralizes these support activities, in collaboration with the company based in Brazil. It is precisely in this case that the above-mentioned CARF decision is relevant. Finally, it should be noted that cost-sharing agreements may result in additional litigation between a subject and the IRS. In the example shown above, there is a clear distinction between the revenues received by the parent company on intangible assets prior to purchase and the revenues generated by the parent company and the portion of intangible capital expenditures after the cost-sharing agreement came into effect.