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India: APAs on treatment of advertising, marketing, and promotion expenses

India: APAs on advertising, marketing, promotion

The Central Board of Direct Taxes (CBDT) announced two advance pricing agreements (APAs) addressing the treatment of advertising, marketing, and promotion expenses have been concluded.

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These APAs are the first ones to address the issue of advertising, marketing, and promotion expenses. They also involved resolution of issues concerning marketing royalties and technical royalties.

KPMG observation

With these APAs, India’s tax authorities have exhibited a willingness to go beyond resolving routine transactions. Because the treatment of advertising, marketing, and promotion expenses is one of the most litigated transfer pricing issue in India—with several high courts and tribunals apparently being unable to resolve taxpayer concerns favorably—tax professionals believe that these APAs bode well for other taxpayers that may currently be in litigation concerning advertising, marketing, and promotion expenses (even though an APA is specific to a taxpayer, and provides a unique resolution for the taxpayer).

With several bilateral and numerous unilateral APAs being concluded at a fast pace, APAs seem to have become a viable option for taxpayers that want to obtain tax certainty on complex issues. APA resolution on advertising, marketing, and promotion expenses for each taxpayer will need to be based on its own unique set of facts and circumstances.

 

Read a February 2018 report [PDF 491 KB] prepared by the KPMG member firm in India

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