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    AMP Expenses and Transfer Pricing

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    Mehar Verma
    For transfer pricing provisions to apply to expenses, there must be an international transaction between associated enterprises as defined by law. Several court cases have established that advertising, marketing and promotion expenses cannot be benchmarked under transfer pricing unless the revenue department can show evidence of an arrangement or agreement between the Indian entity and its foreign associated enterprises regarding sharing or allocation of these expenses to the benefit of the foreign AE. If no such agreement exists, then the AMP expenses cannot be considered an international transaction subject to transfer pricing rules.

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    AMP Expenses and Transfer Pricing

    Uploaded by

    Mehar Verma
    42 views2 pages
    For transfer pricing provisions to apply to expenses, there must be an international transaction between associated enterprises as defined by law. Several court cases have established that advertising, marketing and promotion expenses cannot be benchmarked under transfer pricing unless the revenue department can show evidence of an arrangement or agreement between the Indian entity and its foreign associated enterprises regarding sharing or allocation of these expenses to the benefit of the foreign AE. If no such agreement exists, then the AMP expenses cannot be considered an international transaction subject to transfer pricing rules.

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    For transfer pricing provisions to apply to expenses, there must be an international transaction between associated enterprises as defined by law. Several court cases have established that advertising, marketing and promotion expenses cannot be benchmarked under transfer pricing unless the revenue department can show evidence of an arrangement or agreement between the Indian entity and its foreign associated enterprises regarding sharing or allocation of these expenses to the benefit of the foreign AE. If no such agreement exists, then the AMP expenses cannot be considered an international transaction subject to transfer pricing rules.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    42 views2 pages

    AMP Expenses and Transfer Pricing

    Uploaded by

    Mehar Verma
    For transfer pricing provisions to apply to expenses, there must be an international transaction between associated enterprises as defined by law. Several court cases have established that advertising, marketing and promotion expenses cannot be benchmarked under transfer pricing unless the revenue department can show evidence of an arrangement or agreement between the Indian entity and its foreign associated enterprises regarding sharing or allocation of these expenses to the benefit of the foreign AE. If no such agreement exists, then the AMP expenses cannot be considered an international transaction subject to transfer pricing rules.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    In absence of any arrangement or agreement, AMP expenses cannot be benchmarked

    under transfer pricing provisions

    For transfer pricing provisions to apply, the transaction in question has to be an “international
    transaction”. So the first requirement for transfer pricing is the occurrence of an international
    transaction Under Section 92B(1) an ‘international transaction’ means- (a) a transaction
    between two or more AEs, either or both of whom are non-resident (b) the transaction is in
    the nature of purchase, sale or lease of tangible or intangible property or provision of service
    or lending or borrowing money or any other transaction having a bearing on the profits,
    incomes or losses of such enterprises, and (c) shall include a mutual agreement or
    arrangement between two or more AEs for allocation or apportionment or contribution to
    any cost or expenses incurred or to be incurred in connection- with the – benefit, service or
    facility provided or to be provided to one or more of such enterprises.

    Case laws

    1. Principal Commissioner of Income Tax Vs.Valvoline Cummins Pvt. Ltd. (High


    Court of Delhi; Decided on 13.03.2020)

    While relying on the Maruti Suzuki India Ltd. v Additional CIT 1 and Sony Ericsson
    India Pvt. Ltd 2 case, the court held that to prove there was an international transaction
    the onus was on the Revenue to show the existence of any arrangement or
    agreement based on which it could be inferred that the advertising, marketing, and
    publicity expenses incurred by the assessee was not for its benefit but the benefit of its
    associated enterprises. If there is no arrangement or agreement, AMP expenses cannot
    be benchmarked under transfer pricing provisions.

    2. Pr. Commissioner Of Income Tax v Yum Restaurants India Pvt. Ltd (High
    Court of Delhi; Decided on 10.12.2020)

    The impugned order dated 12th December 2014 of the ITAT in the concerned case
    was set aside by the High Court of Delhi. The court held that after the decision in

    1
    Maruti Suzuki India Ltd. v Additional CIT SCC ONLINE DEL 13940 (2015).
    2
    Sony Ericsson India Pvt. Ltd v CIT, CTR DEL 276 97 (2015).
    Sony Ericson Mobile Communication, there is a need to determine the existence of
    an operating agreement between the cooperation to ascertain if the AMP expenses
    would amount to an international transaction.

    3. Amadeus India Pvt. Ltd. Vs. ACIT, Circle-2(2) (ITAT New Delhi, Decided on
    31.05.2021)

    It was held that in the absence of an agreement, arrangement, or understanding


    between the appellant and its associated enterprise for sharing the advertisement,
    marketing, and promotion expenses or for incurring the advertisement, marketing and
    promotion expenses for the sole benefit of the associated enterprise, payments made
    by the appellant under the head "advertisement, marketing and promotion" to the
    domestic parties cannot be termed as an "international transaction".

    4. Samsung India Electronics Pvt. Ltd Vs. Additional Commissioner of Income Tax
    (ITAT, New Delhi, Decided on 07.01.2020)

    It was held that for a transaction to be international it has to be demonstrated that


    the transaction arose pursuant to an arrangement. AMP expenses that do not
    amount to an international transaction cannot be put under the purview of transfer
    pricing provisions.

    5. Nivea India Private Limited Vs. The Asst. Commissioner of Income Tax, Circle
    10(3)(1) (ITAT, Mumbai Bench, Decided on 03.03.2020)

    The argument put before the court that even if there is no explicit arrangement, the
    fact that AMP expenses would benefit the subsidiary is itself self-sufficient to infer
    the existence of an international transaction, was rejected by the tribunal. The
    tribunal relied upon the Maruti Suzuki India Ltd case and emphasised that explicit
    agreements are essential for AMP expenses to be benchmarked under transfer pricing
    provisions.

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