In the March 23rd, 2017 decision Amazon.com, Inc. v. Commissioner, T.C., No. 31197-12, 148 T.C. No. 8, the US Tax Court concluded that the United States tax authorities had an arbitrary, unpredictable and unreasonable approach in assessing the buy-in payment and the cost of transfer of assets into a cost sharing arrangement (CSA), in the context of a restructuring involving Amazon and a Luxembourg subsidiary of the Group.
This decision highlights the reasons supporting the latest development of the OECD on the cost-sharing agreements regulations, which now seem less flexible. We remind that contributions to the CSA have to be evaluated according to the value of intangible assets and not according to their historical costs.
BEPS project’s notably reaffirmed the importance of the mutual benefit principle. Indeed, it reminds that an entity that carries out a CSA activity without being incentivized on the global outcome of the CSA – e.g. simply rendering services to the other members from the CSA – would be requalified as a service provider.