The transaction was related to the 2020–21 assessment year of Shell India Markets Private Limited, an Indian subsidiary of the Shell Group. During the year, the company entered into several international transactions with associated enterprises. These included the provision of upstream technical services relating to oil and gas exploration and production under Production Sharing Contracts; the provision of IT and IT-enabled services; the allocation of centralised group costs for downstream support functions; and the recovery of salary costs relating to seconded employees. The upstream technical services were charged at cost, strictly in accordance with the terms of the Production Sharing Contracts. However, the tax authorities rejected this pricing method and applied a mark-up, treating the transaction as comparable to routine service arrangements. They also determined the arm’s length price of certain downstream cost allocations to be nil, citing a lack of evidence of benefit. Further ... Read more

Vodafone Idea Ltd. paid royalties in AY 2016–17 for use of the “Vodafone” and “Essar” brands: about ₹158.91 crore at 0.7 percent of net service revenue to Vodafone Ireland Marketing Ltd. and Vodafone Sales & Services Ltd., and about ₹19.17 crore at 0.35 percent of net service revenue to Rising Group Ltd. The company benchmarked these payments using the CUP as the most appropriate method and also under TNMM at the entity level. The tax authorities rejected that benchmarking claiming that the “Essar” mark had no value so the arm’s length price was Nil, and cut the “Vodafone” royalty rate to 0.25 percent, relying on a royalty arrangement between Virgin Enterprises Ltd. and Virgin Mobile USA LLC as a comparable. On that basis a transfer pricing adjustment of about ₹1,205.47 crore was issued, which the Dispute Resolution Panel later upheld. An appeal was filed with ... Read more

Netflix Entertainment Services India LLP was incorporated in 2017 as the Indian group entity of Netflix. Under a distribution agreements, first with Netflix International B.V. and later directly with Netflix, Inc., the Indian entity was appointed as a non-exclusive distributor of access to the Netflix Service in India for FY 2021–22. Netflix India marketed subscriptions, entered into terms of use with Indian subscribers, invoiced and collected subscription fees, and remitted a distribution fee to its associated enterprise. The fee was computed as subscription revenue net of local costs, plus a fixed return, resulting in a return on sales of 1.36 percent. Netflix India did not receive any rights in content, technology, software, or trademarks, and did not perform content creation, platform development, or other DEMPE functions. All intellectual property and strategic decision making remained with the foreign associated enterprises. The tax authorities rejected the characterisation ... Read more

The case concerning Sony India Pvt Ltd involved multiple assessment years and numerous transfer pricing issues. Most of the issues were decided in Sony’s favour. Certain matters were remanded. The only substantive issue decided against Sony concerned the lower Dividend Distribution Tax rate claim. First, the Tribunal addressed the adjustments made by the tax authorities for alleged advertisement, marketing and promotion (AMP) expenses, considering both the Bright Line Test (BLT) and the so-called ‘intensity adjustment’. The Tribunal held that neither the BLT nor the intensity adjustment is a permissible method under the Income Tax Act for benchmarking AMP expenses. Both the substantive and protective AMP adjustments were deleted. Regarding the royalty payment, the tax authorities had determined the arm’s length price as zero under the CUP method, on the basis that the manufacturing subcontractors, rather than Sony India, should have paid the royalty. However, the ... Read more

Following an audit, the tax authorities concluded that the payments received by Hyatt under the Strategic Oversight Services Agreements (SOSAs) constituted royalties under Article 12 of the India–UAE Double Tax Agreement (DTA), or alternatively, business profits attributable to a permanent establishment (PE) in India. The Income Tax Appellate Tribunal found that Hyatt had a PE in India, after which Hyatt filed an appeal with the High Court. The High Court examined both issues. Regarding royalties, the High Court ruled against the tax authorities. The Court held that the payments did not constitute “royalty” for the use of intellectual property, know-how, or technical services, as defined in the Indian Income Tax Act or Article 12 of the DTA. However, regarding the PE, the High Court ruled that Hyatt did have a fixed-place PE in India under Article 5, due to its continuous and significant involvement in ... Read more

Hitachi Solutions India had excluded the amortization of goodwill from operating costs when conducting its comparability study, claiming it was an extraordinary, non-operating item unrelated to its normal service functions. The tax authorities disagreed, arguing that since the goodwill arose from the acquisition of the taxpayer’s business, the related amortization was a recurring cost reflected in the profit and loss account and should be considered part of the operating expenses. They included it in the operating cost base, which reduced the taxpayer’s profit level indicator and affected the arm’s length analysis. An appeal was then filed by Hitachi with the Income Tax Appellate Tribunal. Decision The Income Tax Appellate Tribunal held that amortization of goodwill stems from a capital transaction, not routine operations, and including it would distort comparability with independent companies performing similar services. It concluded that such costs must be excluded from operating ... Read more

The core issue was whether Beam Global Spirits & Wine’s Advertisement, Marketing, and Promotion expenses for brand promotion constituted an “international transaction” under Section 92B of the Income Tax Act, thereby warranting a transfer pricing adjustment. The tax authorities had applied the Bright Line Test to determine that the AMP expenditure was excessive compared to comparable companies, inferring from this a presumed international transaction with the foreign associated enterprise and making an arm’s length price adjustment. On appeal, the Income Tax Appealante Tribunal overturned the tax authorities adjustment, holding that the existence of an international transaction must be established by tangible evidence—such as an agreement or arrangement—and not by inference from advertisement, marketing, and promotion spending alone. An appeal was then filed by the tax authorities with the High Court. Judgment The High Court dismissed the appeals and upheld the ITAT’s view, reiterating principles from ... Read more

AON Consulting provided services such as human resources consulting, payroll processing, business process outsourcing and software development services. It had controlled transactions with both US and non-US related parties. The pricing of the US transactions had been agreed in a Mutual Agreement Procedure (MAP) between the US and India. The issue for the High Court was whether the non-US transactions should be priced using the same framework as that used to price the US transactions, as ordered by the Income Tax Appellate Tribunal (ITAT) in its decision. In the appeal to the High Court, AON argued that the MAP is based on a consensus between the competent authorities of the contracting states and that the basis for TP adjustments under the MAP cannot be applied to international transactions which are not subject to negotiation under the MAP. Judgment The High Court ruled in favour of ... Read more

Cyient Ltd had issued bank guarantees to various related parties, leading to a dispute over the appropriate arm’s length guarantee fee. The tax authorities applied a rate of 1.90%, based on rates charged by banks to customers, and made an assessment of additional taxable income. Cyient Ltd appealed the assessment to the Income Tax Appellate Tribunal (ITAT). Decision The Tribunal reduced the guarantee fee from 1.90% to 0.53%. For letters of comfort, the ITAT treated them as equivalent to corporate guarantees and applied the same 0.53% benchmark, rejecting the tax authorities’ higher rate. The Tribunal emphasized that corporate guarantee fees should be significantly lower than ECB rates (1.67%). Click here for other translation ... Read more

RIn this case, JCB India Ltd. challenged the assessment order for the assessment year 2017–18, where the tax authorities made a transfer pricing adjustment of approximately ₹166 crores to the royalty payments made by the company to its associated enterprises (AEs). JCB argued that the arm’s length price for royalties should be 4%, in line with a Mutual Agreement Procedure (MAP) settled between Indian and UK tax authorities for previous years. The company further contended that similar royalty arrangements were consistent with those already accepted in earlier years, and that a recently signed Advance Pricing Agreement (APA) for assessment years 2018–19 to 2022–23, which set the royalty rate at 5%, should guide the treatment of the royalty payments in the current year as well. Decision The Tribunal noted that while the royalty arrangements with UK AEs were covered under the MAP and APA in other ... Read more

Sabic India is a subsidiary of the Sabic group and provided marketing services to other companies in the group. For purposes of pricing the controlled transactions, the TNMM had been chosen with a cost based PLI as well as a Berry ratio. Following an audit for FY 2015 and 2016, the tax authorities (the TPO) rejected the method and issued an assessment based on an “other method”. A complaint was filed Sabic India and the assessment was later overturned by the Income Tax Appellate Tribunal. An appeal was then filed by the tax authorities with the High Court. Judgment The High Court upheld the judgment of the Tribunal and found in favour of Sabic India. Excerpts “Undeniably, Rule 10AB of the Rules does permit determination of the ALP by simulating the price that would have been charged in similar uncontrolled transactions under similar circumstances having ... Read more

The question to be decided by the Full Bench of the High Court was whether a permanent establishment (PE) could have positive income notwithstanding losses incurred by the company – of which it is part – in other jurisdictions. This issue was left unresolved in the High Court’s December 2023 judgment, as the Division Bench questioned the view expressed in previous case law that attribution of profits to a PE would only be justified if the company as a whole, and the PE being merely a part of it, had made profits. Hyatt International, on the other hand, argued that if the company had suffered a loss in the relevant assessment year, no profit or income attribution would be warranted as far as the PE was concerned. Judgment The Full Bench of the High Court rejected Hyatt International’s contention and held that the cautious view ... Read more

Sony India Private Limited is a wholly owned subsidiary of Sony Corporation, Japan. During the years under consideration, 2010-11, Sony India was engaged primarily in import and distribution of Sony products in the Indian market. Following an audit, an assessment was issued by the tax authorities where the taxable income of Sony India was adjusted upwards. The tax authorities considered and benchmarked the distribution activities and found that the margin declared by the Sony India was below the average margin of 27,8% determined by applying the TNMM. They further proceeded to benchmark advertising, markeing and promotion (APM) expenses separately by adopting bright line test. An appeal was filed by Sony India Private Limited with the Income Tax Appellate Tribunal. Judgment of the Income Tax Appellate Tribunal The Tribunal ruled mostly in favor of Sony India. Excerpt “24. Next coming to the issue of benchmarking the ... Read more

Samsung India, a subsidiary of Samsung Korea, manufactures and sells mobile phones in India and overseas. Under a technology licence agreement Samsung India paid royalties of 8% to Samsung Korea. Following an audit, the tax authorities determined that Samsung India was a contract manufacturer and therefore the payment of royalties on its sales to group companies was not considered to be at arm’s length. Deductions for the royalty payments were disallowed and an assessment of additional taxable income was issued. Samsung India appealed to the Income Tax Appellate Tribunal, which overturned the assessment, finding that the royalty payments were at arm’s length as Samsung India was not acting as a contract manufacturer but rather as a full-fledged licensed manufacturer. The tax authorities then appealed to the High Court. Judgment The Delhi High Court upheld the ITAT’s decision and ruled in favour of Samsung India. The ... Read more

Progress Rail Locomotive Inc. is a US-based manufacturer and supplier of railway equipment. It had a wholly-owned subsidiary in India which carried out manufacturing activities and also provided various support services to Progress Rail Locomotive Inc. Following an audit, the tax authorities issued a notice of assessment concluding that Progress Rail Locomotive Inc. had a PE in India and that income attributable to the PE was taxable in India. An appeal ended up in the High Court of OF Delhi. Judgment The High Court ruled in favour of India vs. Progress Rail Locomotive Inc. and held that the mere existence of a subsidiary in India does not constitute a PE. In order to establish the existence of a PE, the conditions set out in the applicable treaty must be met on the basis of the actual facts of the case. These conditions were not met ... Read more

The tax authorities had disallowed deductions for administrative services paid by Mercer Consulting to a related party. However, Mercer Consulting was remunerated on a cost plus basis for providing intra-group IT-services and payments for the administrative services were included in the cost basis on which the cost plus remuneration was determined. The Income Tax Appellate Tribunal set aside the assessment in a Judgment issued 25 July 2016. “As a corollary to the ALP of the intra group services received by the assessee being treated as NIL, the price paid for these intra group services is required to be taken out from the computation of remuneration receivable in respect of IT enabled services rendered by the assessee. This is so for the reason that the pricing of IT enabled services is on the cost plus 20% basis, which. has been upheld to be at arm’s length ... Read more

Toyota Kirloskar Motor Pvt. Ltd., challenged an assessment made by the tax authorities for FY 2018-19 regarding the separate benchmarking of royalty payments to its Associated Enterprises (AEs). The main issue related to whether royalty payments should be benchmarked separately or subsumed within the TNMM applied at the entity level. Toyota Kirloskar Motor Pvt. Ltd. argued that it had used TNMM at the entity level, which already took into account all international transactions, including royalty. It contended that royalty was part of integrated business operations and could not be evaluated in isolation. The tax authorities, however, rejected this approach, held that royalty was a separate transaction with a separate agreement, and adopted the CUP method instead. They benchmarked royalty by comparing it to similar expenses (royalty + R&D) incurred by comparable companies, concluding that the royalty paid by Toyota Kirloskar Motor Pvt. Ltd. exceeded the ... Read more

A sales, marketing and management service agreement entered into in 1993 between Asian Hotels Limited and Hyatt International-Southwest Asia Limited had been replaced by various separate agreements – a Strategic Oversight Services Agreements, a Technical Services Agreement, a Hotel Operation Agreement with Hyatt India, and trademark license agreements pursuant to which Asian Hotels Limited was permitted to use Hyatt’s trademark in connection with the hotel’s operation. In 2012, the tax authorities issued assessment orders for FY 2009-2010 to FY 2017-2018, qualifying a portion of the service payments received by Hyatt as royalty and finding that Hyatt had a PE in India. Hyatt appealed the assessment orders to the Income Tax Appellate Tribunal, which later upheld the order of the tax authorities. Aggrieved with the decision, Hyatt filed appeals before the High Court. Judgment of the High Court The High Court set aside in part and ... Read more

Herbalife International India is a subsidiary of HLI Inc., USA. It is engaged in the business of dealing in weight management, food and dietary supplements and personal care products. The return of income for the assessment year 2006-07 was filed declaring Nil income. The Indian company had paid royalties and management fees to its US parent and sought to justify the consideration paid to be at arm’s length. In the transfer pricing documentation the Transactional Net Margin Method (TNMM) had been selected as the most appropriate method for the purpose of bench marking the transactions. The case was selected for scrutiny by the tax authorities and following an audit, deductions for administrative services were denied and royalty payments were reduced. Disagreeing with the assessment Herbalife filed an appeal which was later dismissed by the Tax Appellate Tribunal. An appeal was then filed with the High ... Read more

In order to promote trade and business, India has entered into a number of tax treaties (DTAA) containing a Most Favoured Nation clause. According to the MFN clause, if India enters a tax treaty on a later date with another OECD member country providing a beneficial rate of tax or restrictive scope for taxation, a similar benefit will be available to the other country where the MFN clause has been included in the tax treaty. In this ruling, the Supreme Court of India held that the benefit of MFN clause under India’s tax treaties is available only after notification by the Government of India. The Supreme Court concluded as follows: “(a) A notification under Section 90(1) of the Income Tax Act,1961 is necessary and a mandatory condition for a court, authority, or tribunal to give effect to a Double Taxation Avoidance Agreement (DTAA), or any ... Read more

An assessment had been issued by the tax authorites in regards of Auronext Pharma’s pricing of purchase and sales transactions with related parties. The tax authorities had rejected the CUP method applied by Auronext Pharma. “Since the comparable transactions were with related parties those transactions cannot be considered under CUP method for the purpose of benchmarking the taxpayers transactions.” Instead, the tax authorities used the Transactional Net Margin Method (TNMM). An appeal was filed by Auronext Pharma with the ITAT. Judgment of the Income Tax Appellate Tribunal The ITAT remanded the case to the tax authorities to examine afresh the data available with respect to un-related parties and find out whether the transaction of the assessee are at arm’s length or not by applying the CUP method. Excerpt ” (…) The sole basis of rejecting the method adopted by the assessee was the transactions were ... Read more

Under India’s Income Tax Act, an appeal against an order of an Income Tax Appellate Tribunal can be made to the High Court if it is satisfied that the case involves a “substantial question of law”. In the 2018 case of Softbrands India Private Ltd., the Karnataka High Court held that issues relating to the selection of comparable data and criteria for comparability in benchmarking for transfer pricing purposes do not raise a “substantial question of law”. In the 2023 case of SAP Labs India Private Ltd., the Supreme Court reversed this decision. According to the Supreme Court, it is always open to a High Court in an appeal involving transfer pricing issues to examine on a case-by-case basis whether the transfer pricing rules have been complied with or not and whether there is any perversity in the findings made by the Tribunal in determining ... Read more

Travelport Inc. provides electronic global distribution services to airlines via a computerised reservation system (CRS). This system is connected to airline servers, with data continuously sent and obtained regarding flight schedules, seat availability, and so on. Travelport earns USD/EUR 3 for each booking made in India for providing CRS services. Travelport entered into a distribution agreement with an Indian entity to market and distribute those CRS services to travel agents in India. For this service, Travelport paid an amount ranging from 33.33% to 60% of its total earnings to the Indian entity. Following an audit, the tax authorities concluded that the income earned by Travelport Inc. from the CRS services was earned through the hardware installed at the travel agents’ premises in India, and that Travelport Inc. was liable for tax on the total income of USD/EUR 3 in India. However, Travelport Inc. filed complaints, ... Read more

Mylan Pharmaceuticals is engaged in the business of trading pharmaceutical products in both domestic and export markets. It also provides business support services and research and development activities to other group companies. Following an audit, the tax authorities issued a notice of assessment which partially disallowed deductions for advertising and promotional expenses for the launch of new products. Mylan appealed to the Principal Commissioner of Income Tax where the assessment was subsequently overturned. The tax authorities then appealed to the Income Tax Appellate Tribunal. Judgment of the ITAT The Income Tax Appellate Tribunal allowed the appeal and set aside the decision of the Commissioner of Income Tax. Excerpts “It has been held in various decisions that for invoking jurisdiction u/s 263 of the I.T. Act, the twin conditions namely, (a) the order is erroneous and (b) the order is prejudicial to the interest of the ... Read more

Google Ireland licenses Google AdWords technology to its subsidiary in India and several other countries across the world. The Tax Tribunal in India found that despite the duty of Google India to withhold tax at the time of payment to Google Ireland, no tax was withheld. This was considered tax evasion, and Google was ordered to pay USD 224 million. The case was appealed by Google to the High Court, where the case was remanded to the Income Tax Appellate Authority for re-examination. Judgment of the ITAT After re-examining the matter on the orders of the Karnataka High Court, the Income Tax Appellate Authority concluded that the payments made by the Google India to Google Ireland between 2007-08 and 2012-13 was not royalties and therefore not subject to withholding tax. Excerpts “30. On a consideration of all the above agreements and the facts on record, ... Read more

The tax authorities had disallowed deductions for purported administrative services paid for by Akzo Nobel India to a group company in Singapore. The Income Tax Appellate Tribunal upheld the assessment in a Judgment issued in February 2022. An appeal was then filed by Akzo Nobel India with the High Court. Judgment of the High Court The High Court dismissed the Appeal of Akzo Nobel India and upheld the judgment of the Income Tax Appellate Tribunal. Excerpt “…this Court finds that all the three authorities below have given concurrent findings of fact that the Appellant had failed to furnish evidence to demonstrate that administrative services were actually rendered by the AE and the assessee had received such services. In fact, the ITAT has noted in the impugned order “….On a specific query made by the Bench to demonstrate the receipt of services from AE through cogent ... Read more

Amway India is engaged in the business of direct selling of consumer products through multi-level marketing. For FY 2013-2014 Amway paid royalties to a foreign Amway group company. Following an audit, an assessment was issued by the tax authorities where the royalty had been reduced based on a benchmark study resulting in additional taxable income. An appeal was filed by Amway India with the Income Tax Tribunal where the assessment was set aside. An appeal was then filed by the tax authorities with the High Court. In the appeal the tax authorities stated that the Tribunal had failed to appreciate the fact that the royalty payments were excessive considering the Advertisement, Marketing and Promotion (‘AMP’) expenses incurred by Amway India for the benefit of the group’s trademark and brand. According to the tax authorities Amway India created marketing intangibles for the group and should be ... Read more

Sulzer Tech India Pvt Ltd (the assessee) is in the business of providing design and engineering services. To that end Sulzer Management AG, an associated enterprise provided various IT and support services to Sulzer Tech India. The payment for these services had been determined based on a benchmark study where Sulzer Management AG was chosen as the tested party. The cost plus margin for the selected comparables ranged from 4.08% to 7.08%, with a median of 5.69%, and on that basis the payment to Sulzer Management of Rs. 2,52,49,650, which was equal to cost plus 5%, was considered to be at arm’s length. The tax authorities disagreed and held that Sulzer Tech India at arm’s length would not have paid any amount toward services which are not availed to it and have not benefited its business. Accordingly, an adjustment of additional income of Rs. 2,52,49,650, ... Read more

Whirlpool of India Ltd, a subsidiary of the Whirlpool group, distributes Whirlpool products in India and incurs advertising, marketing and promotion (AMP) expenses. An assessment had been issued by the Indian tax authorities for the fiscal year 2016-17 in which the AMP expenses incurred by Whirlpool of India were treated as an international transaction on behalf of other companies in the Whirlpool group, resulting in a significant adjustment to Whirlpool India’s taxable income. Whirlpool filed an appeal which was heard by the Income Tax Appellate Tribunal. Decision The Tribunal set aside the assessment and ruled in favor of Whirlpool. It found that the assessment lacked substantial evidence that AMP’s expenses were incurred for the benefit of other group companies. An application for appeal by the tax authorities to the Supreme Court of India was dismissed in November 2024. Click here for translation ... Read more

Olympus Medical Systems India is a subsidiary of Olympus Corp and engaged in the import, sale and maintenance of medical equipment in India. For FY 2012 and 2013 the company reported losses. An transfer pricing audit was initiated by the tax authorities and later an assessment was issued. Since Olympus India had failed to provide audited financials of its associated enterprises to determine the overall profits of the group, it adopted the Resale Price Method using the Bright Line Test approach. An appeal was then filed by Olympus with the Tax Appellate Tribunal. Olympus India argued that the tax authorities was erroneous in adopting the Residual Profit Split Method in determining the arm’s length price of the AMP expenses and furthermore that the tax authorities could not make an adjustment without having information on the total profits of the group. Judgment of the Tax Appellate ... Read more

Adidas India Marketing Pvt. Ltd. is engaged in distribution and marketing of a range of Adidas and tailor made branded athletic and lifestyle products. Following an audit for FY 2016-2017, an assessment had been issued by the tax authorities where adjustments had been made to (1) advertising, promotion and marketing activities in Adidas India which was considered to have benefitted related parties in the Adidas group, (2) royalty/license payments to the group which was considered excessive and (3) fees paid by Adidas India to related parties which was considered “fees for technical services” (FTS) subjekt to Indian withholding tax. Following an unfavorable decision on the first complaint, an appeal was filed by Adidas with the Income Tax Appellate Tribunal. Judgment of the ITAT The Tribunal decided predominantly in favor of Adidas. Issues 1 and 2 was restored back to the tax authorities for a new ... Read more

UPS Asia is a company incorporated under the laws of Singapore and is engaged in the business of provision of supply chain management including the provision of freight forwarding and logistic services. In 2012 UPS Asia had entered into a Regional Transportation Services Agreement with UPS SCS (India) Pvt. Ltd. for the provisions of freight and logistics services. Under the Transportation Agreement, UPS Asia arranged to perform international freight transportation and provide overseas support services, while UPS India performed freight and logistics services in India to its India customers and to UPS Asia. Following an audit an assessment was issued according to which UPS Asia had a PE in India in the form of UPS India. Furthermore, profits of Rs.2,09,53,496 was considered attributable to operation in India. The tax authorities held that UPS India constitutes a PE of UPS Asia in India within the meaning ... Read more

Akzo Nobel India Pvt – a subsidiary of Akzo Nobel Coatings International BV – had paid for administrative services purportedly rendered form a group company in Singapore and had claimed a deduction of INR 19,465 250. The price paid for these services had been determined by the group on an aggregate basis using the transactional net margin method to establish that all controlled transactions in Akzo Nobel India had been at arm’s length. During the audit, the tax authority requested Akzo Nobel India to justify the arm’s length nature of the payment for these administrative services. To that end Akzo Nobel India submitted a copy of the agreement and the allocations keys used. Akzo Nobel India also submitted that the group company in Singapore had provided administrative support services like supply chain management support, marketing and commercial service support, commercial vehicle support, automotive after-market support, ... Read more

Kellogg India Private Limited is engaged in manufacturing and sales of breakfast cereals and convenience foods and it operates as a licensed manufacturer under the Kellogg brand. During the year under consideration, Kellogg India had commenced business of distributing Pringles products in the Indian markets. Kellogg India purchases the pringles product from its AE Pringles International Operations SARL, based in Singapore. Singapore AE does not manufacture pringles, but in turn gets it manufactured from a third party contract manufacturer. Thereafter, the goods are supplied at a cost plus mark up of 5% on third party manufacturer’s cost. These Pringles are later imported by Kellogg India from its AE and distributed in the Indian market. Kellogg India characterised itself as a distributor of Pringles products and is responsible for the strategic and overall management of Pringles business in India. Singapore AE, being the least complex entity, ... Read more

Synamedia Ltd. provides open end-to-end digital technology services to digital pay television platform operators. The company has expertise in the area of providing conditional access system, interactive systems and other software solutions as well as integration and support services for digital pay TV networks. For FY 2014-15 the company filed a tax return with nil income. The case was selected for a transfer pricing audit. The tax authorities in India accepted the arm’s length pricing determined by Synamedia, but some of the intra-group licence payments for software were considered subject to withholding taxes in India. Hence an assessment was issued. An appeal was filed by the company. Judgment of the Tax Appellate Tribunal The Tribunal decided in favor of Synamedia Ltd. and set aside the assessment. After analyzing the terms of the agreement the Tribunal concluded that the terms of agreement in the present case ... Read more

BMW India Financial Services Pvt. Ltd. had deducted costs for IT support Services it had received from its parent company – BMW AG. The price paid for the services had been determined as the costs plus a markup of 5%. The tax authorities disallowed deductions for the 5% markup, finding that no explanation or contractual basis for the markup had been provided. A written agreement was first at a later time entered between BMW India and BMW AG. In the appeal, BMW India argued that the 5% markup was compliant with the arm’s length principle and also in accordance with international guidance and industry practices. Judgment The Tribunal allowed the appeal and set aside the assessment. According to the Tribunal the 5% markup for IT Services was acceptable according to international guidelines and guidance issued on intra-group services by the EU Joint Transfer Pricing Forum ... Read more

Times Infotainment Media Ltd (TIML India), is in the entertainment business, including running an FM Broadcasting channel in India. It successfully participated in the auction of the radio business of Virgin radio in March 2008 in the United Kingdom. To complete the acquisition, it acquired two SPV companies, namely TML Golden Square Limited and TIML Global Limited. TIML India wholly held TIML Global which in turn wholly held TIML Golden. TIML India received funding from its parent Bennet Coleman & Co. Limited and remitted money primarily as an interest-free loan to TIML Global on 27 June 2008. TIML Global, on behalf of TIL Golden, paid UKP 53.51 million for the acquisition of Virgin Radio Shares. The acquisition of shares in Virgin Radios by TIML Golden was completed on 30 June 2008. TIML India booked the transaction in its accounts as a loan to TIML Global ... Read more

Sabic India Pvt Ltd was primarily engaged in providing marketing support services to facilitate the selling of fertilizers and chemicals in India on behalf of the Sabic Group holding company. The Indian company did not hold any title to inventories and all products sold were directly invoiced to the holding companies of the taxpayer. To determine the arm’s length remuneration for marketing support services Sabic India Pvt Ltd found that the TNMM was the most appropriate method The tax authorities disagreed and instead held that the CUP method was more appropriate. On that basis an assessment was issued. Judgment of the Tax Appellate Tribunal The Tribunal decided in favor of Sabic India Pvt Ltd and set aside the tax assessment. The Tribunal held that the TNMM cannot be discarded without any valid justification as the method was widely accepted by the Indian revenue since 2009 ... Read more

The controversy in the case of India vs Concentrix Services Netherlands B.V. & Optum Global Solutions International Netherlands B.V., was the rate of withholding tax to be applied on dividends paid by the Indian subsidiaries (Concentrix Services India Private Limited & Optum Global Solutions India Private Limited) to its participating (more than 10% ownership) shareholders in the Netherlands. The shareholders in the Netherlands held that withholding tax on dividends should be applied by a rate of only 5%, whereas the Indian tax authorities applied a rate of 10%. The difference in opinions relates to interpretation of a protocol to the tax treaty between India and the Netherlands containing an most favoured nation clause (MFN clause). MFN clauses provides that the parties to the treaty (here India and the Netherlands) are obliged to provide each other with a treatment no less favourable than the treatment they ... Read more

At issue in the case of India vs. Engineering Analysis Centre of Excellence Private Limited, was whether payments for purchase of computer software to foreign suppliers or manufacturers could be characterised as royalty payments. The Supreme Court held that such payments could not be considered payments for use of the underlying copyrights/intangibles. Hence, no withholding tax would apply to these payments for the years prior to the 2012. Furthermore, the 2012 amendment to the royalty definition in the Indian tax law could not be applied retroactively, and even after 2012, the definition of royalty in Double Tax Treaties would still override the definition in Indian tax law. Excerpt from the conclusion of the Supreme Court “Given the definition of royalties contained in Article 12 of the DTAAs mentioned in paragraph 41 of this judgment , it is clear that there is no obligation on the ... Read more

Redington India Limited (RIL) established a wholly-owned subsidiary Redington Gulf (RG) in the Jebel Ali Free Zone of the UAE in 2004. The subsidiary was responsible for the Redington group’s business in the Middle East and Africa. Four years later in July 2008, RIL set up a wholly-owned subsidiary company in Mauritius, RM. In turn, this company set up its wholly-owned subsidiary in the Cayman Islands (RC) – a step-down subsidiary of RIL. On 13 November 2008, RIL transferred its entire shareholding in RG to RC without consideration, and within a week after the transfer, a 27% shareholding in RC was sold by RG to a private equity fund Investcorp, headquartered in Cayman Islands for a price of Rs.325.78 Crores. RIL claimed that the transfer of its shares in RG to RC was a gift and therefore, exempt from capital gains taxation in India. It ... Read more

ST Microelectronics Pvt. Ltd. is a subsidiary of ST Microelectronics Pte. Ltd. which in turn is a wholly owned subsidiary of ST Microelectronics NV, Netherlands. ST Microelectronics Pvt. Ltd. is into the business of Integrated Circuit Design, CAD Tools and software development for its overseas group concerns. It also provides marketing support services to a group company and software development services related to design implementation and maintenance with respect to Integrated Circuits as required by guidelines/instructions. During the year under assessment, the taxpayer entered into various transactions with its Associated Enterprises. In order to benchmark its international transactions qua provision of software development services and qua provision of marketing support services ST Microelectronics used Transactional Net Margin Method (TNMM) with Operating Profit/Operating Cost as the Profit Level Indicator (PLI) being the Most Appropriate Method (MAM), computed its own margin at 11.11% as against weighted average ... Read more

At issue was if the activities carried out by Samsung Heavy Industries’ Mumbai project office constituted a permanent establishment or if the activities were of a preparatory and auxiliary nature. The Indian Supreme Court decided in favor of Samsung Heavy Industries. Under the Tax Treaty, the condition for application of Article 5(1) of the Tax Treaty and there by constituting PE is that there should be a place ‘through which the business of an enterprise’ is wholly or partly carried on, and furthermore that these activities are not of a preparatory and auxiliary nature, cf. Article 5(4)(e). Board Resolution documents showed that the Mumbai project office was established to coordinate and execute “delivery documents in connection with construction of offshore platform modification of existing facilities for Oil and Natural Gas Corporation”. The office was not involved in the core activity of execution of the Project ... Read more

Toyota Kirloskar Auto Parts Private Limited manufactures auto parts and sold them to Toyota Kirloskar Motors Limited, another Indian corporation in the Toyota Group. In FY 2013-14 Toyota Kirloskar Auto Parts Private Limited paid a 5% royalty to the Japanese parent Toyota Motor Corporation for use of know-how. The royalty rate had been determined by application of the TNMM method. The Indian tax authorities did not agree with the choice of method and argued that the most appropriate method was the Profit Split Method (PSM). Judgment of the Tax Appellate Tribunal The Tribunal decided in favor of Toyota Kirloskar Auto Parts and set aside the assessment. Excerpt “17. It is clear from the above OECD guidelines that in ‘order to determine the profits to be split, the crux is to understand the functional profile of the entities under consideration. Although the comparability analysis is at the ... Read more

Gulbrandsen Chemicals manufactures chemicals for industrial customers in the petrochemical and pharmaceutical industry. The Indian Subsidiary, Gulbrandsen India also sold these products to its affiliated enterprises, namely Gulbrandsen Chemicals Inc, USA, and Gulbrandsen EU Limited. In regards of the controlled transactions, the tax authorities noticed that Gulbrandsen India had shifted from use of the internal CUP method to pricing based on the Transactional Net Margin Method (TNMM). The tax authorities were of the view that, given the facts of the case, the internal CUP was the most appropriate method. It was noted that Gulbrandsen India had sold 40% of its products to the associated enterprises, and earned a margin of PBIT/Cost at 2.07%, as against the sale of 70% of its products in the prior year and earning margin of PBIT/Cost at 3.26%. Following a decision of the Tax Tribunal, where the assessment of the ... Read more

Fulford India Ltd. imported active pharmaceutical ingredients (APIs) from related Group companies and sold them in India. The cost plus method had been used by Fulford to determine the arm’s length price of the controlled transactions. Following an audit for the financial year 2003-04, the tax authorities determined that the CUP method was the most appropriate method and issued an assessment of additional taxable income. An appeal was made to the Income Tax Appellate Tribunal. Judgment The Tribunal dismissed Fulford’s appeal and upheld the decision of the tax authorities to apply the CUP method. Excerpts “In the instant case, the appellant’s therapeutic segment are distinct i.e. systematic anti-infectives, dermatologicals, oral steroids, anti histamine having distinct process, patent, formulations and regulatory requirements. Thus CPM is not the appropriate method in the instant case. Accordingly, their manufacturing into final product cannot be clubbed together to compare gross ... Read more

The facts in brief are that TMW ASPF CYPRUS (hereinafter referred to as ‘assessee’) is a private limited company incorporated in Cyprus and is engaged in the business of making investments in the real estate sector. The company in the year 2008 had made investments in independent third-party companies in India (hereinafter collectively known as ‘investee companies’) engaged in real estate development vide fully convertible debentures (FCCDs). It was these investments that made the investee companies an associated enterprise of the assessee as per TP provisions. The assessee had also entered agreements, according to which the assessee was entitled to a coupon rate of 4%. Further, after the conversion of the FCCDs into equity shares, the promoter of Indian Companies would buy back at an agreed option price. The option price would be such that the investor gets the original investment paid on subscription to ... Read more

In dispute was royalty payments from an Indian subsidiary to it’s Israeli Parent company, Netafim, Israel. Following an audit the tax authorities set the royalty to nil. Judgment The Court dismissed the Revenue’s tax assessment. “Therefore, even assuming that CUP method has been applied by the Transfer Pricing Officer, it is apparent that he has not undertaken the exercise provided under rule 10B(i)(a) for determining the arm’s length price. Therefore, the contention of the learned Departmental Representative that the arm’s length price of royalty has been determined at nil by applying CUP method is totally unacceptable. Further, in case of Denso India Ltd. (supra), cited by the learned Departmental Representative, the Hon’ble Jurisdictional High Court has approved the decision of the Transfer Pricing Officer in applying TNMM for benchmarking the arm’s length price of royalty paid. In case of CLSA India Ltd. (supra) and Frigo ... Read more

According to Amphenol Interconnect the TNMM was the most appropriate method for determining the arm’s length price in respect of exports and import of goods from the related parties. And since the net profit margin of Amphenol was comparable to the net profit margin of the comparable companies, the transactions were at arm’s length. The tax authorities disagreed and issued an assessment for FY 2012-2013 where the controlled transactions had instead been priced using the CUP method. Judgment of the Tribunal The Tribunal decided in favor of Amphenol. Excerpt “The Hon’ble High Court after analyzing the issues at length has held that CUP method would not be the most appropriate method in view of various adjustments, which would have to be made due to differences in FAR, in order to arrive at the arm’s length price of finished goods. The Hon’ble High Court notes that ... Read more

Heidelberg Cement India Ltd is engaged in the business of manufacturing of cement and sells them to its customers in India. A TNM method where all the transactions was combined had been used by the company for determining the arm’s length price of its controlled transactions as they were considered closely linked. Following an audit for FY 2010 2011, the Indian tax authorities issued an assessment of additional taxable income where the pricing of the transactions had instead been determined on a transaction by transaction basis. According to the tax authorities, technical know-how fees paid to the parent company were excessive. At issue before the High Court was whether the combined transaction approach as applied by the company or the transaction by transaction approach as applied by the tax authorities was the most appropriate method for determining the arm’s length pricing of the international transactions ... Read more