SCHEDULE P Allocation of Income and Expenses

Under Section 936(h)(5) (Form 5735)

OMB No. 1545-0217 (Rev. October 2000)

Department of the Treasury

Internal Revenue Service  Attach to Form 5735

Attach a separate Schedule P for each product to which the cost sharing or profit split method under section 936(h)(5) applies.

Name as shown on Form 5735 Employer identification number

Identify the product reported on this schedule. (See Regulations section 1.936-5(a).) 

All Taxpayers Must Complete Part I (See instructions.)

Product area research 1 1

Sales of the possession product 2 2

Sales of all products in the product area 3 3

Cost sharing fraction (divide line 2 by line 3) 4 4

Gross cost sharing amount (multiply line 1 by line 4) 5 5

6 Reductions 6

Net cost sharing amount (subtract line 6 from line 5). If the cost sharing method applies, also include

on line 8a, Part II, Form 5735 and on line 26, page 1, Form 1120 of the possessions corporation

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7

Complete for Profit Split Method Only (See instructions.)

Combined taxable income from the possession product:

Combined gross receipts 1 1

2 Combined cost of goods sold:

2a a Inventory at beginning of year

b Merchandise bought for manufacture 2b

Salaries and wages allocable or apportionable to the product 2c c

d Other costs (attach schedule) 2d

2e e Total (add lines 2a through 2d)

2f f Inventory at end of year

g Cost of goods sold (subtract line 2f from line 2e) 2g

Combined gross income (subtract line 2g from line 1) 3 3

4 Other combined expenses allocable or apportionable to the product:

4a a Marketing

b Floor on research and experimental deduction (see instructions) 4b

4c c Research and experimental expenses

d Enter the greater of line 4b or 4c 4d

Other deductions (attach schedule) 4e e

4f f Total (add lines 4a, 4d, and 4e)

Combined taxable income (subtract line 4f from line 3) 5 5

Possessions corporation’s gross income from the product (50% of line 3). Enter here and include

in column (f), Part I, Form 5735, and on line 6a, Part II, Form 5735

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6

7 Possessions corporation’s applicable deductions (50% of line 4f). Enter here and include on line 8b,

Part II, Form 5735 7

Possessions corporation’s taxable income from the product (50% of line 5). Enter here and include

on line 10, page 1, Form 1120, of the possessions corporation

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8

Complete for Profit Split Method Only (See instructions.)

1 1 Adjustment to research deduction. Enter line 4b minus line 4c of Part II. Do not enter less than zero

2 2 Enter the amount from line 5, Part II

3 3 Enter the amount from line 8, Part II

4 Combined taxable income (line 1 plus line 2 minus line 3). Allocate to U.S. affiliates on schedule

below 4

Schedule of affiliates’ shares of combined taxable income reported on line 4 of Part III

(c)

Amount of share. (b)

Identifying number

(a)

Name of affiliate

For Paperwork Reduction Act Notice, see page 2. Cat. No. 61167O Schedule P (Form 5735) (Rev. 10-2000)

Enter here and include on line 10,

page 1, Form 1120 of the appropriate

affiliate.

Part III

Part I

Part II
Schedule P (Form 5735) (Rev. 10-2000) Page 2

Complete for Cost Sharing Method Only (See instructions.)

Schedule of affiliates’ shares of cost sharing amount and marketing intangible income

(d)

Share of marketing intangible

income.

(c)

Share of cost sharing amount. (b)

Identifying number

(a)

Name of affiliate

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).

General Instructions

Section references are to the Internal Revenue Code, unless

otherwise noted.

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.

Paperwork Reduction Act Notice. We ask for the information on

this form to carry out the Internal Revenue laws of the United States.

You are required to give us the information. We need it to ensure

that you are complying with these laws and to allow us to figure and

collect the right amount of tax.

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.

The time needed to complete and file this form will vary depending

on individual circumstances. The estimated average time is:

Recordkeeping 9 hr., 48 min.

Part II

Learning about the law or the form 1 hr., 27 min.

Preparing the form 2 hr., 36 min.

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. Copying, assembling, and sending

the form to the IRS 16 min.

If you have comments concerning the accuracy of these time

estimates or suggestions for making this form simpler, we would be

happy to hear from you. See the instructions for the tax return with

which this form is filed.

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.

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).

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.

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.

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).

Specific Instructions

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.

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.

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). 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).

Enter here and include on line 10,

page 1, Form 1120, of the

appropriate affiliate.

Enter here and reduce line 26,

page 1, Form 1120, of the

appropriate affiliate by this amount.

Part IV

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.

You are not required to provide the information requested on a

form that is subject to the Paperwork Reduction Act unless the form

displays a valid OMB control number. Books or records relating to a

form or its instructions must be retained as long as their contents

may become material in the administration of any Internal Revenue

law. Generally, tax returns and return information are confidential, as

required by section 6103.

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.