Transfer Pricing Ideas: Chinese Trains and Cost-Sharing

The current transfer pricing rules for cost sharing arrangements (CSAs) call for certain "buy-ins" (now called PCTs) when one party makes intangible property available for certain research and development purposes. Recently, however, various transactions have occurred in the "real world" in which one party makes technology available in commercial transactions for little or no consideration. This certainly creates (at least in this author's mind) some thoughts worth considering, many of which could present significant opportunities in terms of tax planning, audit defense and compliance.

Background: U.S. style cost sharing

Of all transfer pricing topics, cost sharing is the most controversial. From a tax perspective, it largely is a U.S. invention with its roots in the 1986 Tax Reform Act. Congress noted in the Act's legislative history that cost-sharing is a legitimate device by which to divide profits from exploiting intangible property. Congress, however, failed