Jowita Pustuł
Cost sharing agreement - transfer pricing problem
Summary
According to the arm's length principle prices set for transactions between related group entities should, for tax purposes, be derived from prices that would have been applied by unrelated parties in similar transactions under similar conditions in the open market. Thus, for the conditions of a cost sharing agreement to satisfy the arm’s length principle, a participant’s contributions must be consistent with what an independent enterprise would have agreed to contribute under comparable circumstances. Unfortunately it is difficult to find transactions comparable to cost sharing agreement between independent parties. This article discusses complications in applying the arm's length principle by related parties concluding cost sharing agreements.