As 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 also in valuing contributions involving pre-existing intangibles. Where the arrangements viewed in their totality lack commercial rationality in accordance with the criteria in Section D.2 of Chapter I, the CCA may be disregarded.
TPG2022 Chapter VIII paragraph 8.40
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By OECD
Category: OECD Transfer Pricing Guidelines (2022), TPG2022 Chapter VIII: Cost Contribution Arrangements | Tag: CCA/CSA, Commercial rationality, Cost Contribution Arrangement (CCA), Cost Sharing Arrangement (CSA), Development CCAs, Disregarding the transaction, Hard-To-Value Intangibles (HTVI), Intangibles, Non-recognition and re-characterisation, Pre-existing intangibles
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- TPG2022 Chapter VIII paragraph 8.33Company 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 417. 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 8.37In the case of development CCAs, variations between a participant’s proportionate share of the overall contributions and that participant’s proportionate share of the overall expected benefits may occur in a particular year. If that CCA is otherwise acceptable and carried out faithfully, having regard to the recommendations of Section E,...
- 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 8.24Contributions to a CCA may take many forms. For services CCAs, contributions primarily consist of the performance of the services. For development CCAs, contributions typically include the performance of development activities (e.g. R&D, marketing), and often include additional contributions relevant to the development CCA such as pre-existing tangible assets or...
- 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...
- TPG2022 Chapter VIII paragraph 8.10Two types of CCAs are commonly encountered: those established for the joint development, production or the obtaining of intangibles or tangible assets (“development CCAs”); and those for obtaining services (“services CCAs”). Although each particular CCA should be considered on its own facts and circumstances, key differences between these two types...
- TPG2022 Chapter VIII paragraph 8.21If an arrangement covers multiple activities, it will be important to take this into account in choosing an allocation method, so that the value of contributions made by each participant is properly related to the relative benefits expected by the participants. One approach (though not the only one) is to...
- TPG2022 Chapter VIII paragraph 8.15A 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 paragraph 8.14Because 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...