SCHEDULE P Allocation of Income and Expenses

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

OMB No. 1545-0217 (Rev. January 1995)

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 (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

7

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

6

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

8

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 line 5, Part II

3 3 Enter 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 back of form. Cat. No. 61167O Schedule P (Form 5735) (Rev. 1-95)

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. 1-95) 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

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 10 hr., 2 min. 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.

Learning about the law or the form 1 hr., 56 min.

Preparing the form 4 hr., 2 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 32 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.

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.

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