India: Functional, asset and risk analysis

Functional, asset and risk analysis of Indian taxpayers

The Kolkata Bench of the Income-tax Appellate Tribunal addressed the functional, asset and risk analysis with respect to a taxpayer and its related parties and relied in part on the UN Transfer Pricing manual and the OECD’s Transfer Pricing guidelines (2010). The tribunal rejected the tax authorities’ contention that the amount of risk borne by the entities depended on which party contracted with the customer—i.e., the argument that the contracting party bears more risk compared to the subcontracting party.

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The case identifying information is: DCIT v. ITC Infotech India Ltd. (ITA No. 2222 & 2223/Kol/2010)


The taxpayer provides information technology services to customers, and uses marketing support services of its U.S. and U.K. related parties.

The Transfer Pricing Officer proposed an adjustment with respect to payments made for accounting management charges paid by the taxpayer to its subsidiaries, and proposed revising the revenue-sharing model without considering the functional and risk profile of the taxpayer and its related parties and the global business model that they followed.

The tribunal held that while the business models were “optically different” in terms of the contracting party, the functional and risk profile of both the taxpayer and the related parties remained the same in both models. The tribunal “deleted” the transfer pricing adjustment made concerning the accounting management charges.

The tribunal’s decision—relying in part on the UN and OECD guidelines—found the conduct of the taxpayer and its related parties is to be given due cognizance, which is the same under both business models.


Read a January 2015 report [PDF 460 KB] prepared by the KPMG member firm in India: The Kolkata Tribunal confirms that functional, asset and risk analysis should be given due importance over the business models agreed between the taxpayer and its associated entities

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