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Service: Tax, Global Transfer Pricing Services, Global Compliance Management Services
Type: Regulatory update
Date: 1/28/2013

India - Transfer pricing adjustment for advertising, marketing, promotion expenses

January 28: The Delhi Special Bench of the Income-tax Appellate Tribunal found for the government in upholding a transfer pricing adjustment in relation to advertising, marketing, and sales promotion expenditures incurred by the taxpayer with respect to an intangible for and on behalf of a foreign related party.

The special bench concluded that the taxpayer’s activities concerning the marketing intangible can be construed to be a service provided by the taxpayer to the related party for which a mark-up is appropriate. LG Electronics India Private Ltd v. ACIT (ITA No. 5140/Del/2011)

Overview

The taxpayer (a wholly owned subsidiary of a Korean entity) was given the right to use technical information, designs, drawings, and industrial property rights in exchange for the payment of a royalty at the rate of 1%.

The taxpayer reported a sales ratio of 3.85%.

The Transfer Pricing Officer, however, considered information from two comparables to find a sales ratio of 1.39%; and that the taxpayer promoted the brand owned by the Korean related-party, the Transfer Pricing Officer concluded that the taxpayer ought to have been compensated by the Korean entity for the excess advertising, marketing, and promotion expenses of 2.46%. Thus, a transfer pricing adjustment was made.

A “special bench” was convened to consider the issues, and the recent decision upheld the transfer pricing adjustment.

Read a January 2013 report [PDF 224 KB] prepared the KPMG member firm in India: Transfer pricing adjustment in relation to AMP expenditure permissible – Delhi Special Bench of Tax Tribunal

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

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© 2013 KPMG International Cooperative ("KPMG International"), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.