The Delhi High Court has held that money spent by Indian subsidiaries of foreign companies on advertising, marketing and promotion (AMP) of their global brand here are international transactions and fall under the purview of transfer pricing rules, reports PTI.

A bench of justices Sanjiv Khanna and V Kameswar Rao, while ruling in favour of the tax department that expenses on AMP are international transactions, however, refused to accept the method employed by the authorities to calculate tax payable by the subsidiaries. Instead, the bench laid down a number of guidelines to be adopted by the authority for calculating the tax payable by the subsidiary for expenses incurred on AMP.

The bench also remanded back to the Income Tax Appellate Tribunal (ITAT) the issue of calculation of tax payable by subsidiaries for fresh consideration based on the guidelines laid down by the court.

It directed all the stakeholders to appear before the Tribunal on April 20, on which date ITAT will decide the date for hearing the issue of calculating tax payable by the subsidiaries.

The ruling and guidelines came on the pleas of several Indian subsidiaries of multinational companies including Sony, Daikin, Haier, Reebok, Canon and Casio.

The firms had primarily opposed the tax authority’s view that AMP beyond the ‘bright line’ is a separate and independent international transaction undertaken by the Indian subsidiary for promoting the brand of the parent company. ‘Bright line’, as per tax authorities, is the industry standards of spending on AMP and any expenditure over and above this limit is taxable. The companies had opposed the same saying such a methodology is inflexible.