India: Evaluating advertising and marketing expenses - KPMG Global
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India: Evaluating advertising and marketing promotion expenses as international transaction

India: Evaluating advertising and marketing expenses

The Delhi Bench of the Income-tax Appellate Tribunal remanded issues relating to advertising and marketing promotion expenses, for a new determination.


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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:

  • A “bright line test” in respect of advertising and marketing promotion expenses that was largely approved by the Dispute Resolution Panel
  • Conducted a advertising and marketing promotion “AMP intensity adjustment” to the profit margins of comparable companies

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

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