US IRS advises on inclusion of royalties in subsidiary’s five-year projection under cost sharing agreement

In unofficial advice, the IRS Office of Chief Counsel advised that a taxpayer that is a party to a cost-sharing agreement may not need to include any royalties in its five-year projection for a US subsidiary after the second half of the fiscal year. In the situation under consideration, the taxpayer knew halfway through the fiscal year at issue that it intended to liquidate the “withdrawing participant” into the US subsidiary at the end of the fiscal year.

The Chief Counsel’s Office stated that, under such circumstances, in the following fiscal year the US subsidiary would own all the rights to exploit the intellectual property previously owned by the withdrawing participant, as well as future rights to exploit intellectual property developed thereafter. In addition, the taxpayer may need to include all of the US subsidiary’s reasonably anticipated benefits from those rights in its five-year projection for the US subsidiary.

Be the first to comment

Leave a Reply

Your email address will not be published.