The cost sharing agreement is designed for the purpose of sharing the group entity’s costs between the benefiting entities. The agreement follows the transfer pricing requirements regarding intra-group services, namely, the substance of the services (exclusion of not allowed activities), allocation principles and application of the OECD recommended level of mark-up.

The agreement addresses the following tax and transfers pricing issues:

  • the agreement addresses the allowable management and other services
    • strategic management and daily corporate services
    • human resources services
    • information technology services
    • legal  services
    • technical services
    • training
    • finance and accounting services
    • sales support services
    • other.
  • the management services agreement lists also the services which are usually not-allowed (e.g. shareholder expenses and other expenses that do not benefit the recipients)
  • suggests the appropriate cost base and the mark-up for management services
  • has “no-permanent establishment”, “no-agency” and no “personnel lease” clauses
  • recommended level of mark-ups for different types of the managements services, e.g. low value added services
  • invoicing and transfer pricing adjustment technique.

The content of the agreement is as follows:

  • Contracting parties
  • Preamble
  • Services (Subject of the Agreement)
  • Service Fees
  • Payment of service fees
  • Record keeping, documentation and audit
  • Rights and obligations of the parties
  • Default of the parties
  • Force Majeure
  • Notices
  • Jurisdiction, term and termination
  • Appendix A. List of participating companies
  • Appendix B. List of services
  • Appendix C. Services excluded
  • Appendix D. Method of calculating service fee

The cost sharing agreement, if properly implemented and complied with, might serve as a sufficient evidence to comply with the transfer pricing requirements, since it includes most of the transfer pricing attributes.

The cost sharing agreement contains about 24 pages (approximately 5,500 words). It is designed to cover a broad set of management services, however, it is easy to make it more brief, if required.