Schedule P (Form 5735) (Rev. 10-2000) Page 2
Part IV
Complete for Cost Sharing Method Only (See instructions.)
Schedule of affiliates’ shares of cost sharing amount and marketing intangible income
(a)
Name of affiliate
(b)
Identifying number
(c)
Share of cost sharing amount.
Enter here and reduce line 26,
page 1, Form 1120, of the
appropriate affiliate by this amount.
(d)
Share of marketing intangible
income.
Enter here and include on line 10,
page 1, Form 1120, of the
appropriate affiliate.
General Instructions
Section references are to the Internal Revenue Code, unless
otherwise noted.
Purpose of Schedule. Schedule P must be attached to Form 5735
by a possessions corporation that has elected to use either the cost
sharing method or the profit split method of computing taxable
income under section 936(h)(5).
A separate Schedule P must be filed for each product to which
the cost sharing method or profit split method under section
936(h)(5) applies. If the corporation has elected a different method
for export sales than for domestic sales of the possession product,
two Schedules P must be filed for that product. Complete Parts I, II,
and III if the profit split method applies to the product. Complete
Parts I and IV if the cost sharing method applies to the product.
Form 5712-A. A possessions corporation must establish that it has a
significant business presence in a possession with respect to a
product before it can use the cost sharing or profit split method of
computing taxable income for that product. The possessions
corporation must complete Form 5712-A, Election and Verification of
the Cost Sharing or Profit Split Method Under Section 936(h)(5), and
attach it to Schedule P (Form 5735) for each product for which the
cost sharing or profit split method is elected.
Specific Instructions
Part I
Line 1. Enter the total product area research expenditures incurred
by the possessions corporation and all other members, including
foreign persons, of the affiliated group within the meaning of section
482. Product area research includes expenditures deductible under
section 174; qualified research expenses within the meaning of
section 41(b); and certain other expenditures. See Regulations
section 1.936-6(a)(1).
Line 2. Enter the affiliated group’s total sales or other dispositions of
the possession product to persons who are not members of the
affiliated group. See Regulations section 1.936-6(a)(2).
Line 3. Enter the affiliated group’s total sales or other dispositions of
all products in the same product area as the possession product to
persons who are not members of the affiliated group.
Line 6. Enter the total product area research expenditures paid or
accrued solely by the possessions corporation. However, do not
include amounts paid or accrued to or on behalf of related persons
and amounts paid or accrued under any cost sharing arrangement
with a related person.
Part II
Use Part II to compute the combined taxable income of the
possessions corporation and its U.S. affiliates derived from
the possession product. To figure combined taxable income
when the possession product is a component or end-product form,
see Regulations section 1.936-6(b)(1), Q & A 10 through Q & A 13.
Line 1. Enter the combined gross receipts from the sale or other
disposition of the possession product by the possessions
corporation and its U.S. affiliates to unrelated persons or foreign
affiliates.
Line 2. Enter the sum of the costs of goods sold of the possessions
corporation and of its U.S. affiliates that are attributable to the
possession product.
Line 4b. Subtract any royalties paid under section 367(d) or section
482 from line 5, Part I. Multiply the result by 120% and enter on
line 4b.
Line 8. Since the amount on line 8 is a net amount, do not adjust
any gross receipts (line 1, page 1, Form 1120), any cost of goods
sold (line 2, page 1, Form 1120), or any other deduction (lines 12
through 26, page 1, Form 1120). If, however, the specific
identification of any of these items is needed for other computations
(such as the foreign tax credit), the corporation should make the
necessary identification.
Part III
Line 4. Allocate the amount on this line to the members of the
affiliated group in accordance with Regulations section 1.936-
6(b)(1).
Column (c). The total of column (c) should equal the amount entered
on line 4, Part III. Since these are net amounts, do not adjust any
gross receipts (line 1, page 1, Form 1120), any cost of goods sold
(line 2, page 1, Form 1120), or any other deduction (lines 12 through
26, page 1, Form 1120). If, however, the specific identification of any
of these items is needed for other computations (such as the foreign
tax credit), the necessary identification should be made.
Part IV
Column (c). To compute the cost sharing amount that the affiliates
of the possessions corporation must include in income, multiply the
amount on line 7, Part I, by 110%. Allocate the result among the
affiliates in accordance with Regulations section 1.936-6(a)(5) and
enter the amounts in column (c), Part IV. The cost sharing amount
for certain intangibles cannot be less than the amount of a royalty
paid to an unrelated person under the rules of section 367(d) or
section 482.
Column (d). Enter the share of marketing intangible income
allocated to each of the members of the affiliated group in
accordance with Regulations section 1.936-6(a)(5).
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