Earlier this week, Bloomberg reported that President Donald Trump is pushing the formula as a basis for Germany, Japan and other allies to compensate Washington for US troops based in their countries.

But Shanahan told the Senate Armed Services Committee that such reports were "erroneous."

"We won't do cost-plus-50 percent," he said in a hearing.

He said US partners should pay their "fair share" when they can, but there was no such business-like formula.

"We're not going to run a business and we're not going to run a charity," Shanahan said.

"Payment comes in lots of different forms. At the end of the day, people need to carry their fair share," he said.

"Not everyone can contribute. It is not about cost-plus-50 percent."

Shanahan did not say whether Trump, who built a multibillion-dollar fortune in the real estate business, himself has advocated the formula.

Since coming into office, Trump has warned US allies, especially in NATO and East Asia, to pay more for the US presence.

The White House has said that means NATO allies need to be spending two percent of their gross domestic product on defense.