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

The case concerned the application of the UK’s intangibles asset regime to the transfer of pharmaceutical intellectual property between related parties. Because the parties were related, section 845 CTA required Chemidex Generics Limited to acquire a portfolio of out-of-patent product assets from a partnership owned by the same individuals at market value. The value was determined to be £40 million, amortised over 10 years. The tax authorities contended that the intangible assets were worth far less, as much of the profitability arose from the operating company’s activities rather than from ownership of the intellectual property. They argued that the market value was £10.5 million. During the litigation process, however, they revised this figure downwards, arguing that the correct market value was approximately £9 million, coupled with a significantly longer useful economic life for amortisation purposes — 15 to 20 years. Chemidex Generics Limited filed an appeal, arguing that the assets had substantial standalone value derived from their ability to generate ... Read more

The tax authorities had issued a notice of assessment which disallowed tax deductions for royalties paid by R…Cash & C…, S.A. to its Polish parent company, O…Mark Sp. Z.o.o. R… Cash & C…, S.A. appealed to the Administrative Court, which later annulled the assessment. The tax authorities then filed an appeal with the Administrative Court of Appeal. Judgment of the Court The Court of Appeal revoked the judgment issued by the administrative court and decided in favour of the tax authorities. Extracts “It is clear from the evidence in the case file that the applicant has succeeded in demonstrating that the agreement to transfer rights is not based on effective competition, in the context of identical operations carried out by independent entities. The studies presented by the challenger do not succeed in overturning this assertion, since, as is clear from the evidence (12), they relate to operations and market segments other than the one at issue in the case. The ... 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 compensated with a payment from the group rather than having to pay huge royalties. Judgment ... 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 decision in accordance with the directions given by the Tribunal, and issue 3 was set ... Read more

In applying the provisions of Chapters I – III to transactions involving the transfer of intangibles or rights in intangibles, it should be borne in mind that intangibles often have unique characteristics, and as a result have the potential for generating returns and creating future benefits that could differ widely. In conducting a comparability analysis with regard to a transfer of intangibles, it is therefore essential to consider the unique features of the intangibles. This is particularly important where the CUP method is considered to be the most appropriate transfer pricing method, but also has importance in applying other methods that rely on comparables. In the case of a transfer of an intangible or rights in an intangible that provides the enterprise with a unique competitive advantage in the market, purportedly comparable intangibles or transactions should be carefully scrutinised. It is critical to assess whether potential comparables in fact exhibit similar profit potential ... Read more

In the early 2000s the IRS issued a “APA study guide” where guidance is provided in relation to various practical issues in the area of transfer pricing. The study guide is part of a large collection of IRS practices and statistics from working with MAP and APA that can be accessed via this link ... Read more