1.2. Pool members Only enterprises with corresponding interests may become members of the qualifying pool, i.e. only enterprises that use the services rendered to the pool in an economically identical way The services are combined for the purpose of joint acquisition, development or production of assets services or rights in order to draw a mutual benefit from the combination of the member's resources or abilities. Accordingly, participation in a cost sharing arrangement is restricted to enterprises that themselves derive a benefit from the services they perform for the internal partnership, i.e. to enterprises that make use of their share in the results of the joint activities In a research and development pool, for example, holding companies and patent exploitation companies would pursue interests that are different from those of production companies; therefore, they annot become members of the same research and development pool. This does not exclude the possibility, however, of such companies entering into exploitation agreements with the pool Contractual partners of a pool that perform services in the interest of the pool members and do not use or exploit the results of these services(mere contractors cannot be included in the cost sharing arrangement(see clause 1.7) 1.3. Cost sharing arrangement Following commercial practice a cost sharing arrangement has to be concluded in advance in writing 5). The terms and conditions of the cost sharing agreement must be observed cumentation( see clause must meet minimum requirements and must be accompanied by appropriate do 1. 4. Services Except for demand pools(see clause 1. 7)the services of a pool may be performed by one, by several r jointly by all pool members. Thus, an exchange of services does not take place since the allocated costs are to be treated as the pool members'own deductible expenses se he enterprises receiving the services can be granted a claim which is limited in type and scope of services, i.e. to request services individually or to place orders with the enterprise providing the service f different types of services are supplied these services have to be recorded and valued separately for each type, e.g. if a pool member performs research and development services and also provides administrative services of a different type 1.5. Exclusion of double charges If costs have been allocated and charged on the basis of a cost sharing arrangement the service ecipient must not be charged again, e.g. by invoicing for goods or services Under a cost sh arrangement there can be no separate charge for the transfer of intangible assets the transfer of know-how or the transfer of services, that according to the cost sharing arrangement can be claimed by the pool members 1.6. Capitalizati According to sec. 5 subs. 2 Income Tax Act intangible assets created within the scope of the cost sharing arrangement must not be capitalized. For the capitalization of entrance payments see clause 4.1 1.7. Performance of services by non-pool members Dool), e.g. a contract researcher. The pool must be charged an arms length price for the services of the The pool can also receive services from a related party that itself is not a member of the pool related party(see Federal Tax Court decision of 23 June 1993-Bundessteuerblatt 1993 ll page 801). If there are no appropriate arm's length prices the services should be calculated using the cost plus method The amount charged to the pool must be allocated to the pool members The companies of the M-group, A, B, C, are situated in different countries and so far have undertaken eir research activities on their own. To avoid inefficiencies they establish a research pool in which the research activities are exclusively allocated to A. A's expenses associated with those activities are 126. B exercises coordination activities, since the research pool also receives services from related company D B's expenses associated with the coordination activities are 6 and d's expenses associated with the research activities are 60 Page 2Tax Management Transfer Pricing Report- Revised German Cost Sharing Arrangement Regulations