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The CSA may divide all interests in cost shared intangibles on a territorial basis as follows. The entire world must be divided into two or more non-overlapping geographic territories. Each controlled participant must receive at least one such territory, and in the aggregate all the participants must receive all such territories.

Each controlled participant will be assigned the perpetual and exclusive right to exploit the cost shared intangibles through the use, consumption, or disposition of property or services in its territories.

Thus, compensation will be required if other members of the controlled group exploit the cost shared intangibles in such territory. The CSA may divide all interests in cost shared intangibles on the basis of all uses whether or not known at the time of the division to which cost shared intangibles are to be put as follows. All anticipated uses of cost shared intangibles must be identified. Each controlled participant must be assigned at least one such anticipated use, and in the aggregate all the participants must be assigned all such anticipated uses.

Each controlled participant will be assigned the perpetual and exclusive right to exploit the cost shared intangibles through the use or uses assigned to it and one controlled participant must be assigned the exclusive and perpetual right to exploit cost shared intangibles through any unanticipated uses.

A In the event that the CSA does not divide interests in the cost shared intangibles on the basis of exclusive territories or fields of use as described in paragraphs b 4 ii and iii of this section, the CSA may adopt some other basis on which to divide all interests in the cost shared intangibles among the controlled participants, provided that each of the following criteria is met:. B See paragraph f 3 of this section for rules regarding the requirement of arm's length consideration for changes in participation in CSAs involving divisions of interest described in this paragraph b 4 iv.

The following examples illustrate the principles of this paragraph b 4 :. The Commissioner must apply the rules of this section to an arrangement among controlled taxpayers if the administrative requirements of paragraph b 2 of this section are met with respect to such arrangement and the controlled taxpayers reasonably concluded that such arrangement was a CSA meeting the requirements of paragraphs b 1 , 3 , and 4 of this section.

For arrangements among controlled taxpayers not described in paragraph b 5 i of this section, the Commissioner may apply the provisions of this section if the Commissioner concludes that the administrative requirements of paragraph b 2 of this section are met, and, notwithstanding technical failure to meet the substantive requirements of paragraph b 1 , 3 , or 4 of this section, the rules of this section will provide the most reliable measure of an arm's length result.

For purposes of applying this paragraph b 5 ii , any such arrangement shall be interpreted by reference to paragraph k 1 iv of this section. The following examples illustrate the principles of this paragraph b 5.

In the examples , assume that Companies P and S are both members of the same controlled group. However, because they did not enter into a PCT, as required under paragraphs b 1 ii and b 3 of this section, for the software that was reasonably anticipated to contribute to the development of P-Ves see paragraph c of this section , they cannot reasonably conclude that their arrangement was a CSA.

Accordingly, the Commissioner is not required under paragraph b 5 i of this section to apply the rules of this section to their arrangement. If the Commissioner concludes that the rules of this section provide the most reliable measure of an arm's length result for such arrangement, then pursuant to paragraph b 5 ii of this section, the Commissioner may apply the rules of this section and treat P and S as entering into a PCT for the software in accordance with the requirements of paragraph b 1 ii of this section, and make any appropriate allocations under paragraph i of this section.

Alternatively, the Commissioner may conclude that the rules of this section do not provide the most reliable measure of an arm's length result. In such case, the arrangement would be analyzed under the methods under other sections of the regulations to determine whether the arrangement reaches an arm's length result. Under these circumstances, P and S could not reasonably conclude that their arrangement was a CSA, as described in paragraph b 1 of this section. If the Commissioner concludes that the rules of this section provide the most reliable measure of an arm's length result for such arrangement, then pursuant to paragraph b 5 ii of this section, the Commissioner may apply the rules of this section and make any appropriate allocations under paragraph i of this section.

However, the P-Cap patent rights are expected to lead to benefits attributable to exploitation of the cost shared intangibles extending many years beyond the expiration of the P-Cap patent , because use of the P-Cap patent rights will let P and S bring P-Ves to market before the competition, and because P and S expect to apply for additional patents covering P-Ves, which would bar competitors from selling that product for many future years.

The assumption by P and S of a useful life for the platform contribution that is less than the anticipated period of exploitation of the cost shared intangibles is contrary to paragraph g 2 ii of this section, and reduces the reliability of the method used by P and S. Such make-or-sell rights are fundamentally different from use of the P-Cap patent rights to generate a new product.

This difference raises the issue of whether the make-or-sell rights are sufficiently comparable to the rights that are the subject of the PCT Payment. While a royalty rate for make-or-sell rights can form the basis for a reliable determination of an arm's length PCT Payment in the CUT-based implementation of the income method described in paragraph g 4 of this section, under that method such royalty rate does not decline to zero.

Therefore, the use of a declining royalty rate based on an initial rate for make-or-sell rights further reduces the reliability of the method used by P and S. The temporal mismatch between the period of the royalty rate decline and the period of exploitation raises further concerns about the method's reliability.

In such case, the arrangement would be analyzed under the methods under other section regulations to determine whether the arrangement reaches an arm's length result. A platform contribution is any resource, capability, or right that a controlled participant has developed, maintained, or acquired externally to the intangible development activity whether prior to or during the course of the CSA that is reasonably anticipated to contribute to developing cost shared intangibles.

The determination whether a resource, capability, or right is reasonably anticipated to contribute to developing cost shared intangibles is ongoing and based on the best available information. Therefore, a resource, capability, or right reasonably determined not to be a platform contribution as of an earlier point in time, may be reasonably determined to be a platform contribution at a later point in time.

The PCT obligation regarding a resource or capability or right once determined to be a platform contribution does not terminate merely because it may later be determined that such resource or capability or right has not contributed, and no longer is reasonably anticipated to contribute, to developing cost shared intangibles.

Notwithstanding the other provisions of this paragraph c , platform contributions do not include rights in land or depreciable tangible property , and do not include rights in other resources acquired by IDCs. See paragraph d 1 of this section.

Thus, it is presumed that the platform resource, capability, or right is not reasonably anticipated to be committed to any business activities other than the CSA Activity , as defined in paragraph j 1 i of this section, whether carried out by the controlled participants, other controlled taxpayers, or uncontrolled taxpayers. The controlled participants may rebut the presumption set forth in paragraph c 2 i of this section to the satisfaction of the Commissioner.

For example , if the platform resource is a research tool, then the controlled participants could rebut the presumption by establishing to the satisfaction of the Commissioner that, as of the date of the PCT, the tool is reasonably anticipated not only to contribute to the CSA Activity but also to be licensed to an uncontrolled taxpayer. In such case, the PCT Payments may need to be prorated as described in paragraph c 2 iii of this section. A In general. Some transfer pricing methods employed to determine the arm's length amount of the PCT Payments do so by considering the overall value of the platform contributions as opposed to, for example , the value of the anticipated use of the platform contributions in the CSA Activity.

Such a transfer pricing method is consistent with the presumption that the platform contribution is exclusive that is, that the resources, capabilities or rights that are the subject of a platform contribution are reasonably anticipated to contribute only to the CSA Activity.

See paragraph c 2 i Terms of platform contributions - Presumed to be exclusive of this section. The PCT Payments determined under such transfer pricing method may have to be prorated if the controlled participants can rebut the presumption that the platform contribution is exclusive to the satisfaction of the Commissioner as provided in paragraph c 2 ii of this section.

In the case of a platform contribution that also contributes to lines of business of a PCT Payor that are not reasonably anticipated to involve exploitation of the cost shared intangibles, the need for explicit proration may in some cases be avoided through aggregation of transactions.

See paragraph g 2 iv of this section Aggregation of transactions. Proration will be done on a reasonable basis in proportion to the relative economic value , as of the date of the PCT, reasonably anticipated to be derived from the platform contribution by the CSA Activity as compared to the value reasonably anticipated to be derived from the platform contribution by other business activities.

In the case of an aggregate valuation done under the principles of paragraph g 2 iv of this section that addresses payment for resources, capabilities, or rights used for business activities other than the CSA Activity for example , the right to exploit an existing intangible without further development , the proration of the aggregate payments may have to reflect the economic value attributable to such resources, capabilities, or rights as well.

See paragraph k 2 ii H of this section. Such designation must be consistent with the actual conduct of the controlled participants. If the conduct is consistent with different, economically equivalent types of transactions then the controlled participants may designate the PCT as being any of such types of transactions. If the controlled participants fail to make such designation in their documentation , the Commissioner may make a designation consistent with the principles of paragraph k 1 iv of this section.

Any right to exploit an existing resource, capability, or right without further development of such item, such as the right to make, replicate, license, or sell existing products, does not constitute a platform contribution to a CSA and the arm's length compensation for such rights make-or-sell rights does not satisfy the compensation obligation under a PCT unless exploitation without further development of such item is reasonably anticipated to contribute to developing or further developing a cost shared intangible.

The following examples illustrate the principles of this paragraph c 4 :. A contingent payment schedule based on the uncontrolled make-or-sell licenses may provide an arm's length charge for the separate make-or-sell license between P and S, provided the royalty rates in the uncontrolled licenses similarly decline, but as a measure of the aggregate PCT and licensing payments it does not account for the arm's length value of P's platform contributions which include the rights in the source code and future development rights in ABC.

The following examples illustrate the principles of this paragraph c. In each example , Companies P and S are members of the same controlled group , and execute a CSA providing that each will have the exclusive right to exploit cost shared intangibles in its own territory.

See paragraph b 4 ii of this section Territorial based divisional interests. For purposes of this section, the IDA means the activity under the CSA of developing or attempting to develop reasonably anticipated cost shared intangibles. The scope of the IDA includes all of the controlled participants' activities that could reasonably be anticipated to contribute to developing the reasonably anticipated cost shared intangibles.

The IDA cannot be described merely by a list of particular resources, capabilities, or rights that will be used in the CSA, because such a list would not identify reasonably anticipated cost shared intangibles.

Also, the scope of the IDA may change as the nature or identity of the reasonably anticipated cost shared intangibles changes or the nature of the activities necessary for their development become clearer. For example , the relevance of certain ongoing work to developing reasonably anticipated cost shared intangibles or the need for additional work may only become clear over time.

Reasonably anticipated cost shared intangibles may change over the course of the CSA. The controlled participants may at any time change the reasonably anticipated cost shared intangibles but must document any such change pursuant to paragraph k 2 ii A 1 of this section. Removal of reasonably anticipated cost shared intangibles does not affect the controlled participants' interests in cost shared intangibles already developed under the CSA.

In addition, the reasonably anticipated cost shared intangibles automatically expand to include the intended result of any further development of a cost shared intangible already developed under the CSA, or applications of such an intangible. However, the controlled participants may override this automatic expansion in a particular case if they separately remove specified further development of such intangible or specified applications of such intangible from the IDA, and document such separate removal pursuant to paragraph k 2 ii A 3 of this section.

For purposes of this section, IDCs mean all costs , in cash or in kind including stock-based compensation , as described in paragraph d 3 of this section , but excluding acquisition costs for land or depreciable property , in the ordinary course of business after the formation of a CSA that, based on analysis of the facts and circumstances , are directly identified with, or are reasonably allocable to, the IDA.

Thus, IDCs include costs incurred in attempting to develop reasonably anticipated cost shared intangibles regardless of whether such costs ultimately lead to development of those intangibles, other intangibles developed unexpectedly, or no intangibles. Reference to generally accepted accounting principles or Federal income tax accounting rules may provide a useful starting point but will not be conclusive regarding inclusion of costs in IDCs. The following examples illustrate the principles of this paragraph d 1 :.

If a particular cost is directly identified with, or reasonably allocable to, a function the results of which will benefit both the IDA and other business activities , the cost must be allocated on a reasonable basis between the IDA and such other business activities in proportion to the relative economic value that the IDA and such other business activities are anticipated to derive from such results.

As used in this section, the term stock-based compensation means any compensation provided by a controlled participant to an employee or independent contractor in the form of equity instruments, options to acquire stock stock options , or rights with respect to or determined by reference to equity instruments or stock options , including but not limited to property to which section 83 applies and stock options to which section applies, regardless of whether ultimately settled in the form of cash , stock , or other property.

The determination of whether stock-based compensation is directly identified with, or reasonably allocable to, the IDA is made as of the date that the stock-based compensation is granted.

Accordingly, all stock-based compensation that is granted during the term of the CSA and, at date of grant , is directly identified with, or reasonably allocable to, the IDA is included as an IDC under paragraph d 1 of this section. In the case of a repricing or other modification of a stock option , the determination of whether the repricing or other modification constitutes the grant of a new stock option for purposes of this paragraph d 3 ii will be made in accordance with the rules of section h and related regulations.

Except as otherwise provided in this paragraph d 3 iii , the cost attributable to stock-based compensation is equal to the amount allowable to the controlled participant as a deduction for federal income tax purposes with respect to that stock-based compensation for example , under section 83 h and is taken into account as an IDC under this section for the taxable year for which the deduction is allowable.

Solely for purposes of this paragraph d 3 iii A , section does not apply to the transfer of stock pursuant to the exercise of an option that meets the requirements of section a or a. Solely for purposes of this paragraph d 3 iii A , an amount is treated as an allowable deduction of a foreign controlled participant to the extent that a deduction would be allowable to a United States taxpayer. Solely for purposes of this paragraph d 3 iii A , if the repricing or other modification of a stock option is determined, under paragraph d 3 ii of this section, to constitute the grant of a new stock option not identified with, or reasonably allocable to, the IDA, the stock option that is repriced or otherwise modified will be treated as being exercised immediately before the modification , provided that the stock option is then exercisable and the fair market value of the underlying stock then exceeds the price at which the stock option is exercisable.

Accordingly, the amount of the deduction that would be allowable or treated as allowable under this paragraph d 3 iii A to the controlled participant upon exercise of the stock option immediately before the modification must be taken into account as an IDC as of the date of the modification. Solely for purposes of this paragraph d 3 iii A , if an item of stock-based compensation identified with, or reasonably allocable to, the IDA is not exercised during the term of a CSA, that item of stock-based compensation will be treated as being exercised immediately before the expiration or termination of the CSA, provided that the stock-based compensation is then exercisable and the fair market value of the underlying stock then exceeds the price at which the stock-based compensation is exercisable.

Accordingly, the amount of the deduction that would be allowable or treated as allowable under this paragraph d 3 iii A to the controlled participant upon exercise of the stock-based compensation must be taken into account as an IDC as of the date of the expiration or termination of the CSA. B Election with respect to options on publicly traded stock -. With respect to stock-based compensation in the form of options on publicly traded stock , the controlled participants in a CSA may elect to take into account all IDCs attributable to those stock options in the same amount , and as of the same time, as the fair value of the stock options reflected as a charge against income in audited financial statements or disclosed in footnotes to such financial statements , provided that such statements are prepared in accordance with United States generally accepted accounting principles by or on behalf of the company issuing the publicly traded stock.

As used in this paragraph d 3 iii B , the term publicly traded stock means stock that is regularly traded on an established United States securities market and is issued by a company whose financial statements are prepared in accordance with United States generally accepted accounting principles for the taxable year. For purposes of this paragraph d 3 iii B , a financial statement prepared in accordance with a comprehensive body of generally accepted accounting principles other than United States generally accepted accounting principles is considered to be prepared in accordance with United States generally accepted accounting principles provided that either -.

The election described in this paragraph d 3 iii B is made by an explicit reference to the election in the written contract required by paragraph k 1 of this section or in a written amendment to the CSA entered into with the consent of the Commissioner pursuant to paragraph d 3 iii C of this section. In the case of a CSA in existence on August 26, , the election by written amendment to the CSA may be made without the consent of the Commissioner if such amendment is entered into not later than the latest due date with regard to extensions of a federal income tax return of any controlled participant for the first taxable year beginning after August 26, C Consistency.

Generally , all controlled participants in a CSA taking options on publicly traded stock into account under paragraph d 3 ii , d 3 iii A , or d 3 iii B of this section must use that same method of identification , measurement and timing for all options on publicly traded stock with respect to that CSA.

Controlled participants may change their method only with the consent of the Commissioner and only with respect to stock options granted during taxable years subsequent to the taxable year in which the Commissioner's consent is obtained.

All controlled participants in the CSA must join in requests for the Commissioner's consent under this paragraph d 3 iii C. Thus, for example , if the controlled participants make the election described in paragraph d 3 iii B of this section upon the formation of the CSA, the election may be revoked only with the consent of the Commissioner, and the consent will apply only to stock options granted in taxable years subsequent to the taxable year in which consent is obtained.

Similarly, if controlled participants already have granted stock options that have been or will be taken into account under the general rule of paragraph d 3 iii A of this section, then except in cases specified in the last sentence of paragraph d 3 iii B 4 of this section, the controlled participants may make the election described in paragraph d 3 iii B of this section only with the consent of the Commissioner, and the consent will apply only to stock options granted in taxable years subsequent to the taxable year in which consent is obtained.

A controlled participant 's IDC share for a taxable year is equal to the controlled participant 's cost contribution for the taxable year , divided by the sum of all IDCs for the taxable year. A controlled participant 's cost contribution for a taxable year means all of the IDCs initially borne by the controlled participant , plus all of the CST Payments that the participant makes to other controlled participants, minus all of the CST Payments that the participant receives from other controlled participants.

The following examples illustrate this paragraph d :. A controlled participant 's share of reasonably anticipated benefits is equal to its reasonably anticipated benefits divided by the sum of the reasonably anticipated benefits , as defined in paragraph j 1 i of this section, of all the controlled participants. RAB shares must be updated to account for changes in economic conditions , the business operations and practices of the participants, and the ongoing development of intangibles under the CSA.

For purposes of determining RAB shares at any given time, reasonably anticipated benefits must be estimated over the entire period, past and future, of exploitation of the cost shared intangibles, and must reflect appropriate updates to take into account the most reliable data regarding past and projected future results available at such time.

RAB shares determined for a particular purpose shall not be further updated for that purpose based on information not available at the time that determination needed to be made. For example , RAB shares determined in order to determine IDC shares for a particular taxable year as set forth in paragraphs b 1 i and d 4 of this section shall not be recomputed based on information not available at that time.

Similarly, RAB shares determined for the purpose of using a particular method such as the acquisition price method as set forth in paragraph g 5 ii of this section to evaluate the arm's length amount charged in a PCT shall not be recomputed based on information not available at the date of that PCT.

However, nothing in this paragraph e 1 i shall limit the Commissioner's use of subsequently available information for purposes of its allocation determinations in accordance with the provisions of paragraph i Allocations by the Commissioner in connection with a CSA of this section.

A controlled participant 's RAB share must be determined by using the most reliable estimate. Thus, the reliability of an estimate will depend largely on the completeness and accuracy of the data, the soundness of the assumptions, and the relative effects of particular deficiencies in data or assumptions on different estimates. If two estimates are equally reliable, no adjustment should be made based on differences between the estimates. The following factors will be particularly relevant in determining the reliability of an estimate of RAB shares:.

A The basis used for measuring benefits , as described in paragraph e 2 ii of this section. B The projections used to estimate benefits , as described in paragraph e 2 iii of this section. The following examples illustrate the principles of this paragraph e 1 :.

The Commissioner determines that USP is incorrect for two reasons. See paragraph e 1 i of this section. In order to estimate a controlled participant 's RAB share, the amount of each controlled participant 's reasonably anticipated benefits must be measured on a basis that is consistent for all such participants.

See paragraph e 2 ii E Example 9 of this section. If a controlled participant transfers a cost shared intangible to another controlled taxpayer , other than by way of a transfer described in paragraph f of this section, that controlled participant 's benefits from the transferred intangible must be measured by reference to the transferee 's benefits , disregarding any consideration paid by the transferee to the controlled participant such as a royalty pursuant to a license agreement.

Reasonably anticipated benefits are measured either on a direct basis, by reference to estimated benefits to be generated by the use of cost shared intangibles generally based on additional revenues plus cost savings less any additional costs incurred , or on an indirect basis, by reference to certain measurements that reasonably can be assumed to relate to benefits to be generated.

Such indirect bases of measurement of anticipated benefits are described in paragraph e 2 ii of this section. A controlled participant 's reasonably anticipated benefits must be measured on the basis, whether direct or indirect, that most reliably determines RAB shares.

It normally will be expected that the basis that provided the most reliable estimate for a particular year will continue to provide the most reliable estimate in subsequent years, absent a material change in the factors that affect the reliability of the estimate.

Regardless of whether a direct or indirect basis of measurement is used, adjustments may be required to account for material differences in the activities that controlled participants undertake to exploit their interests in cost shared intangibles.

The SC held that the parameters for quashing should also be considered by the HC while passing any interim order in a petition filed under Section CrPC. Reference was made to three kinds of interim orders that are routinely passed in a quashing petition:. It was held that all interim orders under Section CrPC can be issued only after giving brief reasons through a speaking order, as that would demonstrate an application of mind.

The SC also made separate observations relating to interim orders directing a stay of investigation; or b protection from arrest. The SC concluded that an interim order directing stay of investigation can be passed with circumspection, and should not be passed in a routine or mechanical manner. It was held that if the HC is prima facie of the opinion that an exceptional case is made out for a stay of investigation, it can pass such an order after considering the parameters framed under Section CrPC, read with Article of the Constitution.

The SC also highlighted two illustrative cases where a stay of investigation shall be justified — a if there is an abuse of process of law, by converting a purely civil dispute into a criminal dispute, with the objective of pressurizing the accused; and b The complaint is prima facie barred by law, and the allegations in the FIR do not disclose any cognisable offence. While the conclusions of the SC were with the objective of ensuring that a consistent approach is followed by the HCs, the SC could have further clarified that a stay of investigation shall also be warranted if it has been initiated with a mala fide objective or an ulterior motive.

The SC referred to two earlier decisions in State of Telangana v. State of Telangana [9] , which held that the HC cannot grant interim protection from arrest under Section CrPC, after dismissing a quashing petition. While granting time for the filing of a reply affidavit with additional documents, the High Court had in the interim directed that no coercive measures be adopted against the present respondents director of a real estate development company and his business partners in respect of the FIR registered by the present petitioner Neeharika Infrastructure Pvt Ltd with the Economic Offences Wing for alleged offences under Sections , , , , and B of the IPC.

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