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India: Criteria for selecting transfer pricing comparable companies

India: Criteria, transfer pricing comparable companies

The Kolkata Bench of the Income Tax Appellate Tribunal held that an entity engaged in both manufacturing and trading activities (absent segmented accounts) cannot be treated as a comparable company for benchmarking the taxpayer that was engaged principally in a trading activity.


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The tribunal, however, found that the Transfer Pricing Officer could select comparable companies even when the data were not publicly available.

The case is: Philips Medical Systems (P.) Ltd. v. ITO


The taxpayer (a distributor and commission agent for medical equipment in India) imported equipment and spare parts from its foreign related party. The taxpayer received commissions from the related party. The taxpayer applied the Transactional Net Margin Method (TNMM) to justify the arm’s length nature of the transactions, and selected 10 comparable companies and operating-profit-to-sales as the profit level indicator.

The Transfer Pricing Officer, however, rejected all of the taxpayer’s comparables, and instead selected two companies for which the data were not publicly available.

During an administrative appeal, five of the 10 comparable companies were removed, and it was noted that the restriction that applies with respect to non-publicly available data did not apply to the tax authorities. The two comparable companies selected by the Transfer Pricing Officer were accepted, for a total of seven comparable companies.

On appeal, the tribunal rejected the comparables that were engaged in both manufacturing and trading activities, but held that the restriction precluding the use of non-publicly available comparable data did not apply with respect to the Transfer Pricing Officer.

Read a March 2019 report [PDF 562 KB] prepared by the KPMG member firm in India

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