In general, a profit split agreement is used in an intercompany transaction whereby the activities are highly integrated (and related risks are shared) or in case both group companies in the transaction contribute unique intangible assets.

This specific profit split agreement template covers a situation whereby an intercompany supply of products is remunerated on the basis of a profit split. In the case at hand, one of the group companies is conducting the head office functions and is ultimately responsible for the overall operational activities including development, production, procurement and sales of products. However, due to the fact that the other group company is largely contributing to the development of the product range (which is a key value driver) and procurement activities and related risks are shared, the activities can be considered as highly integrated. As such, the profit split method is considered as the appropriate transfer pricing method.

This agreement template is used to state the rights and responsibilities and to substantiate the at arm’s length character of the transaction on the basis  of a profit split. Common terms in this agreement template inter alia cover the duties of parties, profit sharing and payment, insurance, record keeping, confidentiality, indemnification and termination.

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