• Service: Tax, Global Transfer Pricing Services, Global Compliance Management Services
  • Type: Regulatory update
  • Date: 5/8/2013

India - Tribunal examines transfer pricing’s “deemed international transaction” requirement 

May 8:  The Mumbai Bench of the Income-tax Appellate Tribunal held that for a transaction to be subject to India’s transfer pricing rules as a “deemed international transaction,” the transaction must in fact be an international transaction—that is, one or both of the parties to the transaction must be non-residents. Kodak India Pvt. Ltd. v. ACT (ITA No. 7349/Mum/2012)

The tribunal also held that the Transfer Pricing Officer cannot apply any method other than a prescribed method in the statute for purposes of determining the arm’s length price of the transaction.

In a second issue, the tribunal rejected a proposed transfer pricing adjustment because the adjustment was within the 5% safe harbor.


The case concerns two issues:

  • An asset purchase agreement
  • Mark-up on reimbursements

On the first issue, the taxpayer sold its medical-imaging business through an asset purchase agreement. Because there were foreign holding companies involved, the Transfer Pricing Officer determined the arm’s length price of the transaction based on the ratio of revenue earned by the taxpayer in India, as compared to its global revenue, and proposed a transfer pricing adjustment of over U.S. $19 million. The taxpayer asserted that the transaction was between two Indian entities and therefore not subject to the “deemed international transaction” rules.

The tribunal agreed that the transaction was a domestic one and thus not subject to the transfer pricing provisions. The decision provides guidance on interpreting the term “deemed international transaction” under the statute. Also, it was pointed out that the “corporate veil” cannot be pierced absent proof that the foreign related party influences the business affairs and decisions of the domestic entity.

Concerning the second issue, the taxpayer incurred employee-related expenses and advertising and award sponsorship costs on behalf of its related parties and recovered these expenses using a cost-plus 10% mark-up. The Transfer Pricing Officer applied a mark-up of 12.5%.

Before the tribunal, the taxpayer contended that the transfer pricing adjustment came within the then-applicable safe harbor range of 5%, and as such, the adjustment could not be sustained. The tribunal agreed.

Read a May 2013 report [PDF 184 KB] prepared by the KPMG member firm in India: Existence of elements of international transaction is a must for any transaction to qualify as deemed international transaction under the transfer pricing provisions

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

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