(B) Unreliable projections. A significant discrepancy between projected and actual benefit shares could indicate that the projections were unreliable. In such a case, the district director can use the actual benefits as the most reliable measure of the expected benefit. If the benefits are projected over a period of years and the projections for the first years of the period prove to be unreliable, this may indicate that the projections for the remaining years of the period are also unreliable and should therefore be adjusted. Projections are not considered unreliable due to a discrepancy between the projected share of performance of a controlled participant and the actual share of benefits, if the amount of this difference for each monitored participant is less than or equal to 20% of the participant`s projected share of return. In addition, the District Director will not make an allocation on the basis of such a deviation if the difference is due to an exceptional event beyond the control of the participants and was not reasonably foreseeable at the time of cost-sharing. For the purposes of this paragraph, all Controlled Participants who are not U.S. persons will be treated as a single Controlled Participant. Therefore, an adjustment based on an unreliable projection of the cost shares of foreign-controlled participants will only be made if there is a corresponding adjustment to the cost shares of controlled participants who are U.S. persons. Nothing in this paragraph (f)(3)(iv)(B) prevents the district director from making an allocation if the taxpayer has not used the most reliable basis to measure the expected benefits.
For example, if the taxpayer measures the expected benefits based on the units sold and the district manager determines that another basis for measuring the expected benefits is more reliable, the fact that the units actually sold were less than 20% of the projected sales does not preclude an allocation under this section. On the other hand, taking into account the relationship between the companies of an economic group, the intra-group service contract establishes an effective service at a fair price, as if it were a company independent of the group. (3) provide for an adjustment of the shares of the controlled participants in the intangible development costs to take account of changes in economic conditions, the commercial activities and commercial practices of the participants and the continued development of intangible assets under the agreement; and these agreements are better referred to as “cost-sharing agreements” or “cost-sharing agreements”. Therefore, one of the companies will be able to centralize these activities, support the other organizations in the group and thus create a cost sharing between them, since the implementation of these support activities will ultimately benefit all parties involved. Cost-sharing agreements are cooperation agreements between undertakings established to ensure the correct allocation of costs between different legal persons belonging to the same economic group, in order to determine the allocation of expenses and costs resulting from the exercise of joint activities such as internal accounting, communication, legal and administrative services. The basic tax advantage associated with cost-sharing agreements is that (estimated) market prices are replaced by the costs incurred. To deepen this point, suppose that a company consists of two departments, a parent company and its subsidiary, and these two departments build a cost-sharing agreement. The parent company then develops an intangible asset – for example, a patent on a product that can be sold by both departments. Given the cost-sharing agreement, the subcontractor must pay the parent company a fraction of the cost of developing the patent, the share being determined by the relative benefits of the patent to the parent company and the subcontractor. On the other hand, if no cost-sharing agreement had been concluded, the subcontractor would have to pay a royalty to the parent company for each unit of the patented product that the subcontractor sells, the royalty being equal to the estimated market value of the license to sell the patented product. The sub-company`s royalties to the parent company (under the transfer pricing agreement) and the subcontractor`s cost-sharing payment to the parent company (under the cost-sharing agreement) constitute taxable income for the parent company and are tax deductible for the parent company. Thus, if the parent company operates in a higher tax jurisdiction than the subcontractor and the cost of developing the patent is lower than market-based royalty payments, the company could reduce its global tax liability by introducing a cost-sharing agreement instead of adopting license-based transfer pricing.
(ii) To account for USS` order backlog in the first year, the present present value of sales during the period is used as a basis for measuring benefits. .
