The Chennai Bench of the Income-tax Appellate Tribunal returned a case to the Transfer Pricing Officer with instructions that, in determining the arm’s length price, various adjustments for customs duty, air freight, and foreign exchange fluctuations are to be taken into account.
The case is: Motonic India Automotive Pvt Ltd. v. ACIT (ITA No. 741/Mds/2014)
The taxpayer manufacturers and tests automotive components and parts. During the course of the transfer pricing assessment proceedings, the Transfer Pricing Officer characterized the taxpayer as a distributor, and rejected the taxpayer's own economic analysis and made an upward adjustment.
The taxpayer countered that certain items—such as customs duty, air freight, and a foreign exchange loss—were not to be included in determining the arm's length price of the international transactions.
The tribunal agreed with the taxpayer that the customs duty expenses were "abnormal expenses" and as such, were not to be included in determining the arm's length price. The tribunal also directed the Transfer Pricing Officer to consider the air freight charges incurred by the taxpayer and the foreign exchange fluctuation adjustment for purposes of determining the arm's length price.
Read an October 2016 report [PDF 408 KB] prepared by the KPMG member firm in India: Issue remitted to TPO for determining ALP after considering adjustments on account of customs duty, air freight expenses, and foreign exchange fluctuation
© 2016 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.
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.