Delhi High Court rules on marketing intangibles

By Ranjeet Mahtani and Darshi Shah, Economic Laws Practice
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Delhi High Court delivered a much awaited judgment on the transfer pricing implications of advertisement, marketing and sales promotion (AMP) expenses on 16 March. The judgment ushers in clarity on the issue, to resolve disputes over AMP expenditure by Indian units of multinational companies.

The judgment dealt with several appeals by Indian subsidiaries of multinationals in cases where the ruling of the Special Bench of the Income Tax Appellate Tribunal in the LG case was applied.

Ranjeet Mahtani
Ranjeet Mahtani

The court held that AMP expenses constitute an “international transaction” that falls within the ambit of transfer pricing provisions. However, the computational methodologies employed by the tax authorities were rejected. The judgment stressed that the purpose behind the arm’s length principle is to tax the actual and commercial income which could have been earned by the associated enterprise (AE) in India.

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Ranjeet Mahtani is an associate partner and Darshi Shah is an associate manager at Economic Laws Practice. This article is intended for informational purposes and does not constitute a legal opinion or advice.

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