India: Voice-call centers; not all IT-enabled services are comparable

Comparables of voice-call centers in India

The Delhi High Court held that the selection of two “comparables” by the Transfer Pricing Officer was possibly flawed because the selected comparables provided “knowledge process outsourcing” services—i.e., services involving advance skills representing the “higher end” of IT-enabled services—that were not comparable with the taxpayer’s voice-call services—found to be at the “lower end” of IT-enable services (such as customer support and processing of routine data). The High Court therefore concluded that a knowledge process outsourcing service provider cannot be considered a comparable for benchmarking of international transactions entered into by an entity rendering voice-call services.


Related content

The High Court’s decision also set out the principles for selecting comparables under the Transactional Net Margin Method (TNMM). The case is: Rampgreen Solutions Pvt. Ltd. v. CIT, [ITS No. 102/2015 (AY 2008-09)]


The taxpayer was a wholly owned subsidiary of an entity and provided voice-call services to customers. The taxpayer operated on a cost-plus form of remuneration. In its transfer pricing documentation, the taxpayer adopted TNMM as the most appropriate method for determining the arm’s length price, and selected eight comparables rendering voice-call services.

During the assessment proceedings, the Transfer Pricing Officer rejected the taxpayer’s transfer pricing documentation, and undertook a fresh search of comparables. A transfer pricing adjustment was then computed. The taxpayer appealed administratively to the Dispute Resolution Panel, and the panel affirmed the Transfer Pricing Officer’s selection of the two comparables that provided IT-enable services.

The Income-tax Appellate Tribunal agreed with the selection of the two comparables and held that no further sub-classification for IT-enabled services was needed for purposes of a comparability analysis.

The taxpayer appealed to the Delhi High Court, and asserted that the two comparables at issue performed functionally dissimilar activities in that these two companies performed knowledge process outsourcing, whereas the taxpayer was merely a voice-based call center service provider.

The High Court essentially agreed with the taxpayer, that entities performing voice-call center services and entities providing knowledge process outsourcing services may use different IT systems, services, functions, and quality of manpower, and may undertake different risks. As such, comparing such high-end knowledge process outsourcing service providers with voice-call centers would be unreliable and possibly flawed. The High Court found that functional comparability was a key criterion for purposes of selecting comparables.

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.

Connect with us


Request for proposal



KPMG's new digital platform

KPMG International has created a state of the art digital platform that enhances your experience, optimized to discover new and related content.