Cost Sharing Agreements May Allow Multinational Companies to Reap the Benefits of Intangible Asset Investment

25 March 2009
Vladimir Starkov et al.

As value chains of multinational companies become increasingly dispersed among different countries, owners of valuable intangibles may emerge in multiple taxing jurisdictions. When the owners and users of valuable intangibles are located in different taxing jurisdictions, the question of the arm's length compensation of the intangible owners becomes a vital part of transfer pricing compliance for the multinational enterprise. This article from TPWeek.com explains that multinational companies have several different options to compensate controlled entities that own valuable intangibles used by other affiliates. The authors note that cost sharing arrangements may be useful to establish a proper compensation of the affiliates responsible for intangibles development, provide a mechanism for sharing the risk of intangible development activities among affiliates, improve the cash position of the intangible-developing entities, and establish more efficient intercompany transaction structures.

This article first appeared in the 25 March 2009 edition of TPWeek.com.