Implied Discount rate - NABE
Implied Discount rate - NABE
Implied Discount rate - NABE
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2011 Temporary Regulations - Example 8• Two cost sharing participants; one has a PCT contribution which is valued usingIncome Method• The discount <strong>rate</strong>s for the cost sharing alternative is estimated at 20 percent andthat for the licensing alternative is estimated at 10 percent resulting in a $146 millionPCT• The Commissioner computes an “implied discount <strong>rate</strong>” by equating the net presentvalue of the “differential income stream” to the PCT value of $146 million, whichresulted in a “implied discount <strong>rate</strong>” of 34.4 percent• By analyzing comparable uncontrolled companies, the Commissioner concluded thata reasonable “implied discount <strong>rate</strong>” based on market evidence is about 16 percent• Thus the taxpayer’s analysis was deemed unreasonable and an adjustment wasissued17