The cost model is not relevant – the same applies to AC, FC and FCF.
One department can charge a second for direct costs. In the report to EU, the reporting department should report the cost to EU as direct cost (salaries or materials etc. – defined for budgetary purposes only not form C). The “other” department’s overhead and “profit” should be excluded and overheads at 20% claimed by the contracting department. The cost must be actual direct costs, not higher price from supplier if they had been used.