Do we need a cost-sharing agreement for jointly developed software?
You need one if the participants are genuinely developing something together, each bearing a share of the cost and expecting a share of the resulting benefit. If instead one company does the development and the other simply pays to use the result, that is a licence and calling it a cost split does not change what it is. The distinction matters because the two are priced differently and taxed differently. Start by asking what each participant contributes, what risk each carries if the development fails, and what each will be entitled to exploit if it succeeds.
What is a buy-in payment and when does it apply?
A buy-in arises where a participant brings pre-existing value into the arrangement rather than starting from nothing, or where a new participant joins a programme that has already made progress. The other participants are getting access to something already built, and an independent party would expect to be paid for it. The payment reflects the value of what is contributed, not the historic cost of creating it. Missing this is a common defect: the agreement records the going-forward cost split accurately and says nothing about the technology one side brought to the table on day one.
Our benefit shares turned out different from the projections — is the arrangement broken?
Not by itself. Projections made on a reasonable basis at the outset can turn out wrong without anybody having done anything improper, because that is what a projection is. What is expected is that the divergence be explained: what changed, when it became apparent, and whether the participants' shares were adjusted in response. An arrangement that quietly keeps running on projections everyone knows to be stale is the harder position to defend. Review the benefit measure periodically, record what you found, and make balancing adjustments where the underlying expectation has genuinely shifted.
How do we value contributions to a cost-sharing arrangement?
Consistently, and on the same basis for every participant. That is the requirement that is most often missed, because contributions rarely take the same form: one participant may contribute cash, another engineering time, another existing technology or access to a market. If cash contributions are taken at face value while a contribution in kind is taken at book cost, the split is wrong before it starts. Decide the measurement basis first, apply it to each participant, and write down why that basis reflects what each is actually giving up.
Is a cost-sharing arrangement just a way of avoiding royalties?
That is how a weak one is read, and the way to avoid the reading is substance. A genuine arrangement has participants who each bear development risk, contribute on a consistent basis and expect benefits commensurate with what they put in. One where a single company develops, controls and decides everything, while others pay a share of cost and receive rights, is a licence dressed as a cost split, and the country receiving those payments is likely to price it as a licence. The agreement should describe an arrangement that the participants' conduct actually matches.
Can a participant who only contributes cash be a real participant?
It can, but the entitlement that follows is narrower than the group usually assumes. A participant has to bear risk and expect benefits commensurate with its contribution, and a company that funds development without controlling it is bearing funding risk rather than development risk. That is a real contribution and it earns a real return, but it is not the same as being entitled to a share of what the development produces. Establish what the funder actually decides and what it could absorb if the programme failed, and price from there.
How is a US LLC taxed for a Canadian owner?
This is the classic hybrid mismatch. The United States generally treats a single-member LLC as transparent and taxes the member on the profit as it arises. Canada treats the LLC as a corporation and taxes the member on distributions. So the two countries tax different amounts in different years, and the foreign tax credit — which needs the same income taxed by both in the same year — often cannot bridge it. The treaty relief for hybrids is narrow. See why a Canadian should rarely own an LLC.
Is GILTI computed at the CFC level or the shareholder level?
Both, in sequence. Tested income, tested loss and the qualifying asset base are measured company by company. They are then aggregated at the US shareholder, which is where the netting of losses across companies happens and where the inclusion, the deduction and the credit are determined. That order matters in practice: a loss in one foreign subsidiary can reduce the inclusion caused by another, but only for a shareholder who owns both. See the GILTI inclusion and Form 8992.
