vol.8,No.23)1003 materiality,(i.e. 20 percent), is not provided. More- German content requirements also stre audit and over, the U.s. regulations allow retroactive adjus access rights of the German participants .38 The German a ments,whereas the German tax authority is tradition- participants must be granted access to the relevant ally rather reluctant to accept such a mechanism. In documents and records of the service provider In addi- stead it is claimed that if reviews are conducted in due tion, the type and extent of the inspection of accounts time the adjustments would only affect future periods. 3 have to be stipulated in a qualifying cost sharing agree nt. These requirements must be seen in a historical Elements of qualified Arrangements, context. In the experience of the German tax auditors Documentation Requirements se with the poor access of German subsidiaries to the documentation of its foreign parent To be classified as a qualified company. anng arrange- ment, the written agreement must ts regarding form and with certain cost sharing rules to any arrangement that in substance U.S. requirements show a high similarity in this re- spect. 35 The arrangements must administrative principles on cost sharing do not provide for such a recharacterization An analysis of the documentation requirements be contemporaneous with the formation(and any shows some minor differences. 0 Again, the German revision) of the arrangement tax authorities'obsession with p access to cost include two or more controlled or uncontrolled and benefit-related data is highlighted, or to put it more participants neutrally, the shortcomings of mixing R&D and non R&D arrangements are reflected. While the U.S. regu- a provide a method for sharing costs in respect of lations simply state that the total costs incurred in con- each participant,'s share of anticipated benefits, and nection with the cost sharing arrangement and the costs m provide for adjustments of cost shares to account borme by each controlled participant must be docu- mented the german guidelines prescribe the necessary The document itself (or under German rules also ap- formation in much more detail. The annual settlement pendices, enclosures or additional agreements)must in- f the arrangement-incurred costs must include an clude emized list of the total expenses in respect of cost cen- rs and m a list of participants and any other related benefi their allocation to the participants as well as a canes classification of direct and indirect costs according to cost types such as labor costs, travel expenses, office rent. etc u the method used for sharing costs and the circum stances requiring an adjustment to cost shares due to On the level of the service recipient, it must be mented that the services have actually been received and benefits have been gained. The documentation may on of each participants interest in the take the form of monthly, quarterly, or annual reports in Germany this applies only on services or projects, relevant correspondence, re for R&d cost sharing) earch reports, lists of patent applications, press re m the duration of the agreement; and Conclusion the conditions requiring, and cons agreements in Germany change the exor cost sharing As shown above, the new principl modification or termination of the arrangement sting rules and deviate from the U.S. regulations in some significant the scope of the R&D project, including the intangible likely to have a significant impact on existing agree- or class of intangibles intended to be developed. 6 The ments. Companies that are presently engaged in cost German principles are not as explicit on that point, but sharing agreements in germany must review those ar due to their broader scope appear to include this re- rangements immediately and make whatever modifica- uirement under the documentation of anticipated ben tions are required by this new regime before the end of efits. In illustrating the anticipated benefits, this docu mentation should also include descriptions of the 000. 4 To the extent that an existing agreement in- project scope, e. g, by project reports or target descrip pool under the new rules, such agreements might need tions. 37 to be terminated In any event, it is clear that extensive review is warranted 3Regs.§14824((2)(i)(D) 3s p ra, 3. 3 Cost Sharing Principles. 36 pegs. 51.482-7(b), para. 5.1.1 Cost Sharing Principles. 38 Para. 5. 1. 1 no. 7 and no 11 Cost Sharing Principles. gs.51.482-7(a)(1) gs.§1482-7(b)(4)〔i) 47 Para. 5.1.3 Cost Sharing Principles Regs. 51.482-7Q: para 5.1.4 Cost Sharing Principles 1 Para. 8 Cost Sharing Principles TAX MANAGEMENT TRANSFER PRICING REPORT ISSN 1063-2069 M32200