The Chennai Bench of the Income-tax Appellate Tribunal rejected a transfer pricing adjustment based on the tax administration’s treatment of brand development as a separate international transaction.
The tribunal highlighted that the value to the foreign parent company was its increased brand valuation, as a consequence of cars being sold in India by the taxpayer, and not as a result of conscious brand promotion by the taxpayer. The tribunal concluded that the accretion of brand value, as result of the use of the foreign related party's brand name (an arrangement at arm's length price) did not result in a separate international transaction that needed to be benchmarked.
The case is: Hyundai Motor India Limited v. DCIT
The taxpayer (a wholly owned subsidiary of a Korean company) was involved in the manufacturing and sale of cars in India using the Korean company’s brand. The taxpayer was required to use the company’s “badge” with the trademark of the Korean related party for each and every vehicle manufactured, pursuant to an intercompany agreement between the taxpayer and the Korean company.
Relying on case law that building brand in the local market was an international transaction, the Transfer Pricing Officer proposed an adjustment based on the increased value to the brand, and the Assessing Officer made the adjustment. The taxpayer administratively appealed, and the Dispute Resolution Panel in principle agreed to the adjustment. The taxpayer filed for judicial review.
The tribunal held that the accretion of brand value, as a result of use of the brand name of the foreign related party under the technology-use agreement, which had been accepted to be an arrangement at an arm’s length price, did not result in a separate international transaction to be benchmarked and, therefore, removed the transfer pricing adjustments.
Read a May 2017 report [PDF 358 KB] prepared by the KPMG member firm in India
© 2017 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.