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 exploit the intangibles in the rest of the world. The parties anticipate that Company A will have 75% of total sales and Company B 25% of total sales, and that their share of expected benefits from the CCA is 75:25. Both A and B have experience of developing intangibles and have their own research and development personnel. They each control their development risk under the CCA within the terms set out in paragraphs 8.14 to 8.16. Company A contributes pre-existing intangibles to the CCA that it has recently acquired from a third-party. Company B contributes proprietary analytical techniques that it has developed to improve efficiency and speed to market. Both of these pre-existing contributions should be valued under the guidance provided in Chapters I – III and VI. Current contributions in the form of day-to-day research will be performed 80% by Company B and 20% by Company A under the guidance of a leadership team made up of personnel from both companies in the ratio 90:10 in favour of Company A. These two kinds of current contributions should separately be analysed and valued under the guidance provided in Chapters I – III and VI. When the expected benefits of a CCA consist of a right in an intangible that is hard to value at the start of the development project or if pre-existing intangibles that are hard to value are part of the contributions to the CCA project, the guidance in Sections D.3 and D.4 of Chapter VI on hard-to-value intangibles is applicable to value the contributions of each of the participants to the CCA.
TPG2022 Chapter VIII paragraph 8.33
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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), Development CCAs, Example - CCA balancing payments, Hard-To-Value Intangibles (HTVI), Pre-existing intangibles, Value of contributions
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- 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 the start of the development project, but...
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- TPG2022 Chapter VIII paragraph 8.26In 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...
- TPG2022 Chapter VIII paragraph 8.25Under the arm’s length principle, the value of each participant’s contribution should be consistent with the value that independent enterprises in comparable circumstances would have assigned to that contribution. That is, contributions must generally be assessed based on their value at the time they are contributed, bearing in mind the...
- TPG2022 Chapter VIII paragraph 8.23For 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 of each participant’s...
- TPG2022 Chapter VIII paragraph 8.20To 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 solely in the year the costs are incurred, most typically for development CCAs, the allocation of contributions will take account of projections about the...
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- TPG2022 Chapter VIII Annex example 1a8. 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...
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