In our view, the Brazilian tax authorities are not entitled to tax transfers sent abroad under a cost-sharing agreement with non-resident companies because: The court, in dismissing the appeal, concluded that there was no partnership and that Keydon had provided services to the other company in exchange for an expected share of the company`s profits: Although these are legitimate contracts justified by the need to optimize costs and standardize operations at all levels, the tax implications of the agreements have sparked discussions. This includes determining whether intergroup operations are located exclusively in Brazil or whether the centralization of these activities takes place abroad. Under such conditions, the issue still raises doubts and controversies. However, if there is an effective cost-sharing agreement with the respective controls, we believe that the impossibility of taxation is recognized, whether by decision of the federal tax, the Administrative Tribunal or the courts. (iii) the amount paid in respect of such expenditure would be deductible provided that: (a) it is demonstrated that it is habitual, regular and necessary; (b) they are calculated in accordance with appropriate and objective evaluation criteria previously agreed by the parties; (c) to pay the actual costs of each undertaking for the provision of those services or goods; (d) the centralising undertaking bears only the costs to which it is entitled; and (e) – there is control over these joint expenses and reimbursements. In addition to deductibility for the purposes of the IRPJ and the CSLL, the same reasoning would also allow the company to offset the PIS and COFINS credits in the non-cumulative regime. Cost-sharing arrangements are effective alternatives for the delivery of shared services. In this situation, DGT examined cost-sharing arrangements for VAT purposes in accordance with Chapter VIII of the OECD Transfer Pricing Guidelines and also in accordance with the case law of the Court of Justice of the European Union. Under cost-sharing agreements, each participant makes certain contributions, which are in principle tailored to the expected benefits. These contributions are made in the form of services provided for the benefit of other participants. In the event of a disproportion between benefits and contributions paid under the agreement, an adjustment will be made by means of compensation. A distinction must be made between a CCA received by different participants and a situation in which a particular service function is located in a group unit.
On the one hand, a CCA involves participants using common services to share costs and receive the corresponding portion of the profit made. On the other hand, the centralisation of services in a group company means that that company provides services exclusively for the benefit of the recipient. Where more than one entity receives the service, the associated costs should be shared between them in accordance with specific cost-sharing rules. Although the distribution of profits does not actually fall within the scope of VAT, since it is not a consideration for a service, it must be certain that it is a pure distribution of profits. In fact, a better way to think about it is not to ask, “Am I making a profit?” but rather, “Is this money I receive in exchange for something I do for the other party?” Because profit is considered not to be taken into account only if this is exactly the case; that is, nothing is delivered in exchange for profit. Profit can therefore only be a return on the capital invested in a company. It can be a profit made through a true partnership. It can be a dividend paid to shareholders. It is unlikely that anything other than outside the scope will be considered, unless it can be demonstrated that it is not a supply to another party.
So where would there be a situation where two parties coming together to make the most of a joint business opportunity could be considered supplies? Transfer pricing provides a context in which multinational corporations seek to maximize their economic and organizational efficiency. In this context, the legal mapping of cost-sharing or cost-contribution agreements was first addressed in the 2010 OECD Transfer Pricing Guidelines. Cost-sharing agreements can offer an advantage in terms of reducing VAT costs incurred on reciprocal services provided in a group environment, in accordance with Binding Decision V2746-20 of the Spanish Tax Directorate. .