Latest Expert Exchange Queries

GST Demo Service software link: https://ims.go2customer.com
Username: demouser Password: demopass
Get your inventory and invoicing software GST Ready from Binarysoft info@binarysoft.com
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
 
 
 
 
Popular Search: articles on VAT and GST in India :: ACCOUNTING STANDARDS :: due date for vat payment :: empanelment :: list of goods taxed at 4% :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: TAX RATES - GOODS TAXABLE @ 4% :: Central Excise rule to resale the machines to a new company :: cpt :: ACCOUNTING STANDARD :: ARTICLES ON INPUT TAX CREDIT IN VAT :: VAT RATES :: VAT Audit :: form 3cd :: TDS
 
 
Transfer Pricing »
 A web of requirements in transfer pricing regime
 RBI panel reveals ad hoc, arbitrary practices by banks to inflate interest rates
 Taxman tightens reporting norms for MNCs
 Sabh Infrastructure Ltd Vs. Asstt. Commissioner Of Income Tax
 Transfer Pricing For Multinational Entities
 The wash up - Transfer pricing and the Commissioner of Taxation
 Bosnia's Serb Republic tax body looks into transfer pricing in Nestro Group - report
 Catherine Harlow is new head of transfer pricing at AstraZeneca
  Transfer Pricing Adjustments - The Current Irish Landscape
 Transfer Pricing Adjustments - The Current Irish Landscape
 Will politics trump economics on petrol, diesel pricing?

Delhi High Court rules on Transfer Pricing Adjustment of AMP expenses
February, 19th 2016

In the case of Maruti Suzuki India Ltd. vs. Commissioner of Income Tax, the Delhi High Court has pronounced a landmark ruling that Transfer Pricing Adjustment cannot be made on Advertising, Marketing and Promotion (“AMP”) expenses incurred by a domestic manufacturer who has a license to use the brand of a foreign entity and that excessive AMP expenditure cannot be a basis for discerning the existence of an international transaction.

The taxpayer was an Indian company and a subsidiary of Suzuki Motor Corporation, Japan. The taxpayer had entered into license agreements with the parent company under which the latter granted license to the taxpayer to manufacture car models, provide technical know-how and right to use Suzuki's patents, trademarks, etc. The taxpayer paid the parent a bundled royalty as the consideration.

Upon reference by the Assessing Officer for determination of arm’s length price, the Transfer Pricing Officer (“TPO”) benchmarked the AMP expenses by applying the Bright Line Test, wherein the proportion of such expenses of the domestic entities are compared with that of comparable companies.

The TPO observed that the AMP expenses incurred were 1.87% of its turnover, whereas the average was 0.60% that was being incurred by comparable companies. The Transfer Pricing Officer concluded that transfer pricing adjustment would be required, as excess expenditure must be regarded as being incurred for promoting the brand “Suzuki” owned by SMC, the foreign parent. The DRP upheld the addition made by the TPO. The Assessing Officer thus passed the final order making an addition of AMP expenses.

On further appeal, the Income Tax Appellate Tribunal relied on the ruling of the Special Bench in LG Electronics India Pvt. Ltd. v. ACIT and upheld the transfer pricing adjustment of the revenue department. Thereafter the taxpayer filed an appeal before the Delhi High Court.

The Court held that the very basis of the Bright Line Test was negated by this very Court in an earlier case of Sony Ericsson Mobile Communications India (P.) Ltd. both for determining if there is an international transaction and secondly for the purpose of determining the ALP. The Court opined that the revenue department must establish the existence of international transaction without use of the Bright Line Test. The Court held in this case that existence of international transaction was deduced by the revenue department merely from the fact that the taxpayer had excess AMP spend after applying Bright Line Test. However, upon analysis of Sections 92B to 92F of the Income Tax Act, the Court held that since there is no machinery provided in the Act to determine the existence of international transaction involving AMP expenses, excessive AMP expenditure could not be used as a basis for pointing to the existence of an international transaction.

The Court also observed that under the Income Tax Act, ‘international transaction’ means, inter alia, a transaction “having a bearing on the profits, incomes or losses of such enterprises” and includes “a mutual agreement or arrangement” for allocation of any costs or expenses. Thus an ‘agreement’ or ‘arrangement’ or ‘understanding’ between the two entities must exist whereby one entity is obliged to incur AMP expenses to promote the brand of the other. Such an agreement is a necessary condition but the Revenue had failed to show any such ‘arrangement’ or ‘understanding’ between the two AEs. The Court noted that the taxpayer’s AMP spending was only 1.87% of its sale whereas the parent’s AMP expense worldwide was 7.5% of sales and therefore this belies the possibility of any ‘arrangement’ or ‘understanding’ between the taxpayer and the foreign parent.

The Court further placed reliance on the decision of Sony Ericsson (supra) and Rule 10B to hold that if the Indian entity had satisfied the Transaction Net Margin method i.e. the operating margins of the Indian enterprise are much higher than the operating margins of the comparable companies, no further separate adjustment for AMP expenditure is warranted. Source: High Court of Delhi, ITA Nos. 110/2014 and 710/2015

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Customer relationship management software CRM software Operational CRM Collaborative CRM

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions