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 of Netflix India as a limited risk distributor and treated it as an entrepreneurial provider ... Read more

Auto-Electronics was was part of a Germany based group. It manufactured electronic components for the automotive industry and also carried out R and D activities for affiliated and independent parties. For FY 2018, the transfer pricing documentation covered manufacturing transactions and intra group services charged as a fee described as a license fee for listed support activities, but the individual intra group service contracts were not included in the local documentation and only a framework agreement without specific content was available. In the documentation it applied TNMM and stated a profitability range between minus 0.32 percent and plus 70.45 percent, using operating profit relative to total operating costs as the profit level indicator. The tax authority audited FY 2018 and issued a corporate tax adjustment with related sanctions and imposed penalties linked to transfer pricing record keeping. The Curia record states that the first instance tax authority considered the company’s database research unsuitable and carried out its own comparable screening, ... Read more

Distinguishing provision of value from characterization – (i) P developed a collection of resources, capabilities, and rights (“Collection”) that it uses on an interrelated basis in ongoing research and development of computer code that is used to create a successful line of software products. P can continue to use the Collection on such interrelated basis in the future to further develop computer code and, thus, further build on its successful line of software products. Under § 1.482-7(g)(2)(ix), P determines that the interquartile range of the net present value of its own use of the Collection in future research and development and software product marketing is between $1000x and $1100x, and this range provides the most reliable measure of the value to P of continuing to use the Collection on an interrelated basis in future research, development, and exploitation. Instead, P enters into an exchange described in section 351 in which it transfers certain intangible property related to the Collection to S1 for ... Read more