Cost Sharing Arrangement (CSA): Sharing the Cost of Building IP

Definition

The cost sharing arrangement (the CSA) is the group pact under which two or more group entities share the cost of developing an intangible (the IP) in order to share its exploitation — the participants contribute to the development (the DEMPE work — the Development, the Enhancement) and share the returns of the exploited IP (each participant exploiting the IP in its territory/market, the returns shared per the arrangement) — instead of one entity developing and licensing the IP to the others (the royalty model, the [intangibles guide] (/docs/transactions/intangibles-tp)’s contrast). The CSA’s arm’s length mechanics have two standing components: the contribution (each participant’s entry — the existing IP it brings to the arrangement, valued at its arm’s length value (the contribution analysis, the transfer of the existing intangible priced), and the future development cost it shares (the cost share proportional to the expected benefit — the benefit each participant expects from the exploited IP)); and the CBA (the current benefit analysis — the arm’s length test of the ongoing cost shares: each participant’s current share of the development cost is arm’s length against the current benefit it derives from the IP’s development — the annual re-test the OECD intangibles chapter requires). The CSA’s exit is the exit charge — the arm’s length price of the IP interest the exiting participant had (the exit priced, the [restructuring guide] (/docs/transactions/restructuring-tp)’s standing component). The CSA is the intangibles family’s shared development form — the DEMPE shared, the returns shared — the profit split logic’s pre-arranged form (the returns shared per the arrangement, the residual profit the shared IP’s), and the intangibles guide carries the full treatment (contribution, CBA, exit, the documentation).

The CSA, in one arrangement:
  1. The participants (the 2+ group entities sharing the development and the exploitation)
  2. The contribution (each entry — the existing IP contributed (valued), the future cost share (proportional to the expected benefit))
  3. The CBA (the current benefit analysis — the annual re-test of the cost share against the current benefit)
  4. The exit (the exit charge — the arm’s length price of the exiting participant’s interest in the IP)

The element	The content
The participants	The 2+ group entities sharing the development (the DEMPE work) and the exploitation (the returns of the exploited IP, per the arrangement)
The contribution	Each participant’s entry — the existing IP it contributes (valued at the arm’s length value, the transfer priced) and the future development cost it shares (proportional to the expected benefit)
The CBA	The current benefit analysis — the annual re-test of each participant’s current cost share against the current benefit it derives from the IP’s development (the OECD requirement)
The exit	The exit charge — the arm’s length price of the IP interest the exiting participant had (the exit priced)

The working read (the intangibles guide): the CSA is the shared development form of the intangibles family — the royalty model (one entity develops and owns, the others license — the [royalty] (/docs/glossary/royalty) the arm’s length price of the use) replaced by the shared development (the DEMPE shared, the returns shared per the arrangement). Its [defensibility] (/docs/benchmarking/defending-accept-reject) rests on the three arm’s length components: the contribution (the existing IP’s value at entry — the contribution analysis, the transfer of the existing intangible priced at the arm’s length value — the [valuation] (/docs/transactions/intangibles-tp) the defensibility point); the cost share (the future development cost shared proportionally to the expected benefit — the benefit each participant expects, the proportion the arm’s length logic); and the CBA (the annual re-test — the current cost share against the current benefit, the OECD requirement, the documentation the file’s standing component). The exit is the [exit charge] (/docs/glossary/exit-charge) (the arm’s length price of the exiting participant’s interest in the IP), and the [location savings] (/docs/glossary/location-savings) (the profit shift the relocation of the development function generates, where the CSA’s development moves) is the restructuring interaction the [restructuring guide] (/docs/transactions/restructuring-tp) works. The CSA’s FAR is the shared entrepreneurial profile (the DEMPE shared, the returns shared) — the FAR affinity characterization in Quartyl captures the entrepreneurial profile (the CSA participant the shared instance) as the characterization signal, derived from the FAR facts.

Example

A group: the Indian entity (the R&D centre) and the US entity (the product owner) enter a CSA for the next-generation product platform (the IP to be developed, the shared exploitation — the Indian entity exploiting in the Asian markets, the US entity in the Americas). The CSA’s arm’s length mechanics:

The element	The treatment
The participants	The Indian entity (the R&D capability, the Asian market) and the US entity (the product IP, the Americas market) — the shared development, the shared exploitation
The contribution (entry)	The US entity contributes the existing platform IP (valued at the arm’s length value — the valuation, the transfer priced); the Indian entity contributes the R&D capability (the function, the staff — the capability, not the IP)
The cost share (ongoing)	The development cost shared proportional to the expected benefit (the Indian entity’s share per the Asian benefit, the US entity’s per the Americas — the proportion the arm’s length logic)
The CBA (annual)	The annual re-test — each participant’s current cost share against the current benefit (the OECD requirement, the documentation the file’s standing component)
The exit (if either leaves)	The exit charge — the arm’s length price of the IP interest the exiting participant had (the exit priced)

The documentation (the CSA agreement — the contribution, the cost share, the CBA, the exit terms; the contribution analysis, the CBA annual records, the valuation support) is the file’s core — the [intangibles guide] (/docs/transactions/intangibles-tp)’s standing point (the CSA the shared-development form, the contribution/CBA/exit the three arm’s length components, the documentation the [defensibility] (/docs/benchmarking/defending-accept-reject)), carried in the [Local File] (/docs/glossary/local-file-rule-10d) for the years the arrangement runs.

See also

• Intangibles TP Guide
• DEMPE
• Exit Charge
• Profit Split

FAQ

What is the difference between a CSA and a royalty/license? The development and the ownership of the IP: the royalty/license model — one entity develops and owns the IP, the others license it (the royalty the arm’s length price of the use, the licensor the owner/developer, the licensee the user paying the royalty); the CSA — the participants share the development (the DEMPE shared, the contribution + the cost share) and share the exploitation (the returns shared per the arrangement, the co-ownership or shared rights per the agreement) — the shared-development form, the [profit split] (/docs/glossary/profit-split) logic’s pre-arranged form (the returns shared per the arrangement, not the royalty the use price). The arm’s length question differs: the royalty’s is the use price (the royalty benchmark); the CSA’s is the contribution (the [valuation] (/docs/transactions/intangibles-tp)), the cost share (the benefit proportion), and the CBA (the annual re-test) — the [intangibles guide] (/docs/transactions/intangibles-tp) works both.

What is the CBA, and why is it annual? The CBA (the current benefit analysis) is the arm’s length test of the ongoing cost shares: each participant’s current share of the development cost is arm’s length against the current benefit it derives from the IP’s development (the cost share the benefit proportion). It is annual (the OECD requirement) because the benefit is dynamic — the markets shift, the product evolves, the participants’ exploitation changes (the benefit each participant derives is not static) — and the cost share must track the current benefit (the proportion the arm’s length logic, the re-test the defensibility). The CBA documentation (the annual records, the benefit analysis, the re-test) is the file’s standing component — the CBA not performed is the [documentation weakness] (/docs/documentation/documentation-weaknesses) the examination finds.

What is the exit charge, and when does it arise? The exit charge is the arm’s length price of the IP interest the exiting participant had in the CSA — the exit (a participant leaving the arrangement — the withdrawal, the restructuring event) priced: the IP the participant contributed (the contribution valued at entry) plus the value of the development it funded (the cost share’s proportion of the IP’s value). It arises on the exit (the participant’s withdrawal from the CSA) and is the [restructuring guide] (/docs/transactions/restructuring-tp)’s standing component — the exit charge term carries the valuation logic and the documentation, the [defensibility] (/docs/benchmarking/defending-accept-reject) the exit priced, the valuation on the record.