• Service: Tax, Global Transfer Pricing Services, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 1/14/2014

India - Arm’s length value cannot exceed total revenue  

January 14: India’s Supreme Court dismissed the tax authority’s “special leave petition” that effectively leaves in place a decision of the Delhi High Court that the arm’s length value of international transactions cannot exceed the total revenue earned by the taxpayer and related party from third-party contracts. CIT v. Global Vantedge Pvt. Ltd. (ITA No. 1828/2010)


The taxpayer entered into an arrangement with a related party for debt collection and telemarketing support services that were offered to third-party clients. Under this arrangement, the taxpayer performed services for clients that had contracted with the taxpayer’s related party—hence, the taxpayer rendered IT-enable services and back office support services for the related party.

The taxpayer considered the related party to be the “test party” and compared the profit margin of transactions with the related party to an average margin of foreign comparable companies in its transfer pricing study.

The Transfer Pricing Officer rejected the taxpayer’s position and concluded that the related party was not to be treated as the “tested party” but that the taxpayer was to be considered to be the “related party.” The Commissioner of Income-tax Appeals agreed with the Transfer Pricing Officer that the taxpayer was the “tested party” but granted partial relief for the taxpayer.

The Delhi tribunal concluded and the Delhi High Court eventually affirmed that:

  • The least complex party is to be selected as the “tested party” (but that there may be instances when this may not be appropriate).
  • The arm’s length price reported by the taxpayer cannot exceed total revenue earned by the taxpayer and its related party from third-party clients.
  • Appropriate adjustments must be taken into account for idle capacity and similar factors.

The Supreme Court of India issued a one-word order—“dismissed”—with respect to the tax authority’s appeal.

Read a January 2014 report [PDF 405 KB] prepared by the KPMG member firm in India: Arm’s length price of an international transaction cannot exceed the “final sales price” – Supreme Court dismisses Revenue special leave petition against Global Vantedge ruling

Contact a tax professional with KPMG's Global Transfer Pricing Services.

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