India: Marketing intangibles by licensed manufacturer, no transfer pricing adjustment

India: Advertising, marketing, sales promotion expenses

The Delhi High Court held that the taxpayer’s advertising, marketing, and sales promotion expenses were not an “international transaction” under provisions of India’s tax law, and thus, could not be the basis of a transfer pricing adjustment. The court further held that a “bright line test” as applied by the tax authorities is not permissible under India’s transfer pricing regulations.

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The case is: Maruti Suzuki India Ltd. v. CIT (ITA 110/2014)

KPMG observation

The Delhi High Court distinguished this case from an early 2015 decision, when this same court addressed the treatment of marketing intangibles for taxpayers in marketing and distribution functions, and agreed with the tax authorities' treatment of advertising, marketing, and sales promotion expenses as an "international transaction" that, as such, was subject to the transfer pricing rules.


The taxpayer (the Indian entity of a Japanese holding company) manufactured passenger cars in India. The taxpayer promoted in India a brand owned by the Japanese holding company.

The Transfer Pricing Officer—applying a “bright line test” for determining if there was an international transaction with respect to the taxpayer’s advertising, marketing, and sales promotion expenses—proposed a transfer pricing adjustment for excess expenses in promoting the brand in India when considered against such expenses of comparable companies. 

The Delhi High Court held that in this case, no part of the advertising, marketing, and sale promotion expenses incurred by the taxpayer constituted an international transaction and, accordingly, that the transfer pricing issues were decided in the taxpayer’s favor. The court also held that the “bright line test” as applied by the tax authorities was not permissible under India’s transfer pricing regulations.


Read a December 2015 report [PDF 297 KB] prepared by the KPMG member firm in India: The Delhi High Court held that AMP expenses incurred by Maruti Suzuki India does not constitute an international transaction. It also held the use of a bright line approach inappropriate for determining the existence of an international transaction and for making an adjustment

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