• Service: Tax, Global Transfer Pricing Services, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 6/4/2014

India - Benchmarking for cost-to-cost reimbursement transactions, arm’s length perspective  

June 4: The Delhi High Court rejected a taxpayer’s contention that since a related party had charged only for cost incurred, without any mark-up, further transfer pricing benchmarking was not required. CIT v. Cushman and Wakefield (India) Pvt. Ltd. (ITA 475/2012/Del)

The High Court also held that the Assessing Officer’s referral of this case to the Transfer Pricing Officer was for a limited purpose of determining the arm’s length price, and that this referral did not affect the ability of the Assessing Officer to verify whether an expenditure was in fact business-related.


The taxpayer is involved in rendering services related to the acquisition, sales, and leases of real estate—both inside and outside India. The taxpayer reported several international transactions, including the payment of referral fees to related parties and reimbursement of related parties for costs incurred for certain coordination and liaison services provided to the taxpayer.

On referral, the Transfer Pricing Officer disallowed the claimed expenses for the related-party reimbursements and determined the arm’s length price to be zero. The Transfer Pricing Officer found no intra-group services because the taxpayer was unable to present evidence for the specific need for the claimed services or the resulting benefits. Further, there was no benchmarking or transfer pricing analysis that substantiated the arm’s length nature of the transactions.

The High Court rejected the taxpayer’s claim that benchmarking was not necessary.

KPMG observation

This case demonstrates the importance of analyzing and preparing relevant documentation about transactions, even with respect to cost-to-cost reimbursements.

Tax professionals note that evaluating certain aspects—such as the authenticity of the cost itself and whether such costs are incurred for purpose of the business—and undertaking the correct benchmarking analysis for reimbursed transaction in accordance with India’s transfer pricing rules are equally applicable as for any other inter-company transaction.

Read a June 2014 report [PDF 483 KB] prepared by the KPMG member firm in India: Delhi High Court rules that transfer pricing reference does not curtail test of deductibility of expenses under Section 37 of the Income-tax Act, 1961. Holds that cost-to-cost reimbursement transactions should also be benchmarked from an arm’s length perspective

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

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