US IRS large business unit withdraws cost sharing arrangement directive

The US IRS’s Large Business and International Division in a notice published June 4, but dated and effective May 21, has announced that it has withdrawn Directive LB&I-04-0118-004, Instructions for Examiners on Transfer Pricing Issue Selection-Reasonably Anticipated Benefits in Cost Sharing Arrangements.

Directive LB&I-04-0118-004, issued January 12, 2018, had directed examiners to temporarily stop developing adjustments to cost sharing arrangements (CSAs) based solely on changing a taxpayer’s multiple reasonably anticipated benefits (RAB) shares to a single RAB share when subsequent platform contribution transactions (PCTs) are added to an existing CSA. The temporary halt was due to the fact that that Service was developing a position on the issue.

The IRS position was later announced on July 26, 2018, in an advice memorandum (AM 2018-003). The Service said in this advice memorandum that it may be appropriate to determine and apply different RAB shares with respect to separate cost pools under a single CSA. The memorandum further concludes it may be appropriate to determine and apply a RAB share solely for the purpose of calculating platform contribution transaction (PCT) payments with respect to a particular subsequent PCT that was different from the RAB share used by the taxpayer to calculate cost share transaction payments under the CSA immediately before the subsequent PCT was entered into.

As such, with the issuance of AM 2018-003, the Service decided to withdraw Directive LB&I-04-0118-004.

The Service said the examination of these CSA issues can now continue with the application of the most reliable method depending on the facts and circumstances of each case to determine the appropriateness of using single or multiple RAB shares with respect to a single CSA,

 

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