Cost Sharing Agreement

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Cost Sharing Agreement

A Brief Introduction About the Cost Sharing Agreement

People who work for international projects are aware of the transfers of money and its effect on their tax bills and profits. It is proper documentation, which signifies that there are shared services for which both the parties have paid and also rendered. The paid expenses are crucial and related to business purposes entirely. It is an agreement between companies that work in similar multinational groups, and it allows the companies to share risks and costs of production, development, and assets. Companies that are related to technology, software, pharmaceutical, and R&D work mostly use this agreement.

Who Takes the Cost Sharing Agreement?

That cost sharing agreement is taken between two companies of similar Multi nation groups. It helps both the companies to share resources in such a way that production costs are decreases and revenues are increased. Risks faced by companies are decreased with the help of this agreement. You can look for cost sharing agreement rental services if you have any trouble finding a good agreement template. It isn’t difficult to draft an agreement if you know a little bit about the agreement and its important clauses.

Purpose of the Cost Sharing Agreement

This agreement is made to derive benefits for both the companies equally. Both parties should have an interest in a particular project. This agreement allows both parties to enjoy benefits by using the allocation method, which reflects incurred costs. It also helps in providing effective tax planning for several companies. Mostly global activities need global licensing, and it can become really difficult to provide administration. That’s when this agreement came in form and reduces the additional burden of the tax. The cost sharing contract benefits both the companies equally if it has been mentioned clearly in the agreement.

Contents of the Cost Sharing Agreement

In this agreement, shared costs of premises, utility services, furniture, telephone, postage, insurance coverage, general liability, compensations can be mentioned. There should be a clause for reimbursement for the shared costs. The term period needs to be mentioned in the agreement, along with the books and records of accounts. You must have come across numerous cost sharing examples in real life. In earlier times, this wasn’t a famous thing, but now it has become a trend among MNCs. No company wants to face losses when it comes to money and reputation. That’s why having a co sharing agreement can be beneficial for every MNC out there.

How to Draft the Cost Sharing Agreement?

  • Shared personnel, method of payments, payment calculations, payment dates, termination policies, and shared equipment should be mentioned in the cost sharing agreement
  • You should only form a contract with someone who has the authority to carry out the contract.
  • Make sure all parties Detail the exchange of consideration in the draft
  • All the necessary clauses should be mentioned in the agreement so that there won’t be any dispute later.
  • it should have stringent drafting related to remedies for non-payment
  • there must be dispute resolution clauses

You can check the cost sharing agreement template with which it can be easy for you to make the right decision. If you don’t have any experience of drafting such agreements, it would be best to take the help of the professional attorney who is well-experienced in this field.

If any of the companies want to do the negotiation in this agreement, then it can be done before signing it. If the company has issues afterward, then it can be resolved by putting your points in front of the other party. If the opposite party doesn’t agree on the negotiation terms, then hiring an attorney might help you. Negotiation strategies mostly work when your co-sharing partner doesn’t find any loss in the negotiations.

[ Also Read: Shared Services Agreement]

Benefits and Drawbacks of the Cost Sharing Agreement

This agreement helps in providing a great opportunity to both of the companies as both the parties are able to get a chance to enhance cash flow and also decease their tax bases. They can put all contingencies in place to allocate shared costs between companies. If you want to enter in this agreement, and then make sure you think about it properly. It can help both the companies to save money and hence earn more profits.

The companies can get the best advantage of changing tax brackets if they would follow the principles of cost sharing contracts. There can be a dramatic change for both companies when it comes to tax liabilities. There aren’t any drawbacks to the agreement as it is beneficial for both companies. When the agreement clauses are written in the presence of an attorney, then there won’t be any issue with the clauses and obligations.

What Happens in Case of Violation?

Whenever any company violates the laws and obligations mentioned in the agreement, then they would be required to pay for it. In the intercompany cost sharing agreement, if any company violates the law, then it would have to pay for it, as mentioned in the agreement. No company can go against the law, and that’s why agreement plays an important role in avoiding any disputes(1).

If you are also interested in following the same procedure with another MNC, then you can go for such an agreement.

Make sure that both companies have almost similar goals and requirements. Also, there should be a proper balance created between the company owners and employees. No one wants to pay huge tax bills, and it can definitely be controlled with good planning. The cost sharing agreement would help reduce costs and will increase profits for both parties.