The Ahmedabad Bench of Income-tax Appellate Tribunal deleted a transfer pricing adjustment made by the Transfer Pricing Officer (as subsequently upheld by the Dispute Resolution Panel) concerning a payment for intra-group services made to a related party of the taxpayer. The tribunal rejected the Transfer Pricing Officer’s “nil” (zero) arm’s length price on management services under the comparable uncontrolled price method.
The case is: SABIC Innovative Plastics India Pvt Ltd. v. ACIT
The taxpayer, engaged in manufacturing and trading advanced engineering thermoplastics and polycarbonate sheets, made a payment to a related party for intra-group management services for assessment years 2009-2010 and 2011-2012, justifying the arm’s length price on the basis of the transactional net margin method. However, the Transfer Pricing Officer rejected the taxpayer’s claimed tax treatment, and proposed to benchmark the transaction separately by applying the comparable uncontrolled price method.
The taxpayer had paid a mark-up of 10% on the receipt of information technology services. However, because the services were general in nature and there was no quantification of the services, the Transfer Pricing Officer added a mark-up of 3% that was contended to be the arm’s length price.
The tribunal deleted the transfer pricing adjustment for receipt of management services for both assessment years and upheld the 10% mark-up claimed by the taxpayer on information services, finding that the Transfer Pricing Officer did not provide any specific comparables for justification.
Read an April 2017 report [PDF 313 KB] prepared by the KPMG member firm in India
<p>© 2018 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.</p> <p>Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.</p>
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.