The Delhi Bench of the Income-tax Appellate Tribunal remanded issues relating to advertising and marketing promotion expenses, for a new determination.
The tribunal, however, agreed with the Transfer Pricing Officer’s treatment of the taxpayer’s marketing activity as a “function” (and not as a separate “transaction”) and in considering the advertising and marketing promotion expenses in the profit rates of comparable companies in the transfer pricing adjustment.
The case is: Luxottica India Eyewear Pvt. Ltd. v. ACIT (ITA No. 1492/Del/2015, ITA No. 1205/Del/2016 and ITA No. 344/Del/2017)
The taxpayer is the Indian member of a corporate group that manufactures and sells sunglasses and eyewear.
The Transfer Pricing Officer proposed transfer pricing adjustments in respect of advertising and marketing promotion expenses incurred by the taxpayer. The Transfer Pricing Officer applied:
The taxpayer disagreed, and took the position that the advertising and marketing promotion expense item did not represent an “international transaction” and thus was not subject to a determination of the arm’s length price or any transfer pricing adjustment. Alternatively, the taxpayer asserted the “AMP intensity adjustment” ought to be applied for all subject years. The taxpayer also asserted application of the Resale Profit Method was preferred over the Transactional Net Margin Method (TNMM) as the “most appropriate method.”
The tribunal, noting that the Transfer Pricing Officer had treated the advertising and marketing promotion expense as a separate transaction and benchmarked this using the bright line test, remanded this issue for a “fresh determination” by applying the principles in the Sony Ericsson Mobile Communications case.
The tribunal approved the use of the “AMP intensity adjustment” by the Transfer Pricing Officer, and also approved the taxpayer’s use of the Resale Price Method over the TNMM.
Read a June 2017 report [PDF 340 KB] prepared by the KPMG member firm in India
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.