Taxpayers victorious in cost sharing buy-in payments case
December 18, 2009
Paul Flignor, Alan Granwell and Eric Ryan of DLA Piper discuss the landmark Veritas decision and the implications for taxpayers
The recent Tax Court decision in Veritas v. Commissioner (133 T.C. No. 14) is an important transfer pricing taxpayer victory for computing buy-in payments in cost sharing arrangements (CSA). The IRS asserted that the transfer of pre-existing intangible assets in connection with the CSA was “akin to a business transfer” and valued the buy-in contribution as a continuing business, including goodwill and workforce-in place as intangibles, and based on a perpetual life income stream for these intangibles.
The Tax Court rejected the IRS position as arbitrary, capricious and unreasonable and upheld the taxpayer’s position that the proper valuation methodology should be based on the computed royalty value of the limited life, pre-existing transferred technology intangible assets.
The decision has important implications for taxpayers structuring cost sharing buy-in payments:
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