The profit split method apportions combined profits derived from associated enterprises engaged in linked operations based on an analysis of each contributor’s functions, assets employed, and risks assumed.
Application:
It specifically addresses situations where synergies realized through cooperation render traditional transactional methods inadequate, such as shared R&D or joint manufacturing.
Example:
Regulators endorsed a 50-50 profit split of booming sales from a coproduced pharmaceutical approved using a parent company’s patented ingredients and a local firm’s established distribution network.
Benefits:
The profit split approach offers flexibility tailoring allocations to substance over rigid formulas when related party relations integrate core businesses, supporting mutually beneficial cross-border activity.