In valuing contributions, distinctions should be drawn between contributions of pre-existing value and current contributions. For example, in a CCA for the development of an intangible, the contribution of patented technology by one of the participants reflects a contribution of pre-existing value which is useful towards the development of the intangible that is the objective of the CCA. The value of that technology should be determined under the arm’s length principle using the guidance in Chapter I – III and Chapter VI, including, where appropriate, the use of valuation techniques as set out in that Chapter. The current R&D activity under the development CCA performed by one or more associated enterprises would constitute a current contribution. The value of current functional contributions is not based on the potential value of the resulting further application of the technology, but on the value of the functions performed. The potential value of the resulting further application of the technology is taken into account through the value of pre-existing contributions and through the sharing of the development risk in proportion to the expected share of benefits by the CCA participants. The value of the current contributions should be determined under the guidance in Chapters I – III, VI and VII. As noted in paragraph 6.79, compensation based on a reimbursement of cost plus a modest mark-up will not reflect that anticipated value of, or the arm’s length price for, the contribution of the research team in all cases.
TPG2022 Chapter VIII paragraph 8.26
Posted on | By OECD
Category: OECD Transfer Pricing Guidelines (2022), TPG2022 Chapter VIII: Cost Contribution Arrangements | Tag: CCA/CSA, Cost Contribution Arrangement (CCA), Cost Sharing Arrangement (CSA), Current contributions, Pre-existing contributions, Pre-existing intangibles, Valuation, Valuation method, Valuation technique
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- TPG2022 Chapter VIII Annex example 4 17. Company A and Company B are members of an MNE group and decide to undertake the development of an intangible through a CCA. The intangible is anticipated to be highly profitable based on Company B’s existing intangibles, its track record and its experienced research and development staff. Company A...
- TPG2022 Chapter VIII paragraph 8.33 Company A based in country A and Company B based in country B are members of an MNE group and have concluded a CCA to develop intangibles. Company B has entitlement under the CCA to exploit the intangibles in country B, and Company A has entitlement under the CCA to...
- TPG2022 Chapter VIII Annex example 1 1. Example 1 illustrates the general principle that contributions should be assessed at value (i.e. based on arm’s length prices) in order to produce results that are consistent with the arm’s length 2. Company A and Company B are members of an MNE group and decide to enter into a...
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- TPG2022 Chapter VIII paragraph 8.15 A party would also not be a participant in a CCA if it does not exercise control over the specific risks it assumes under the CCA and does not have the financial capacity to assume these risks, as this party would not be entitled to a share in the output...
- TPG2022 Chapter VIII Annex example 1a 8. The facts are the same as Example 1. In accordance with the guidance in paragraph 8.27, an alternative way to achieve the identical result under Example 1 is through the use of a two-step process as set out below 9. Step 1 (contributions measured at cost): Company A should...
- TPG2022 Chapter VIII Annex example 2 Example 2 12. The facts are the same as Example 1, except that the per-unit value of Service 1 is 103 (that is, both Service 1 and Service 2 are low-value services). Assume, therefore, that the calculation of the costs and value of the services is as follows: Cost to...
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