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India: Marketing survey expenses, technical training held at arm’s length

India: Marketing survey expenses held at arm’s length

The Delhi Bench of the Income-tax Appellate Tribunal held that an expenditure made for a survey of the Indian market could not be construed to benefit the foreign related party (that made no direct sales in India). The tribunal agreed with the taxpayer’s determination under the Comparable Uncontrolled Price (CUP) method.


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The tribunal also agreed with the taxpayer that the “payment of technical support cost” for technical training at the taxpayer’s production facility in India was at arm’s length, with payments made based on specified hourly rates. Accordingly, the tribunal rejected the Transfer Pricing Officer’s approach (effectively based on what was described as a random internet search). The tribunal endorsed a view that comparables are not to be rejected merely due to the geographical difference, unless the effect of differences in the market conditions is shown.

The case is: BMW India Pvt. Ltd. v. ACIT (ITA No. 6160/Del./2014)


The taxpayer imported completely built units of motor vehicles, spare parts, and accessories from its foreign related parties for resale in the Indian market. The taxpayer also engaged in assembling “completely knocked down” kits of certain imported products from the related parties for resale in India. 

During the year at issue, one of the taxpayer’s foreign related parties arranged for a market survey report of the Indian market to be prepared by a third party, and the foreign related party made direct payments to the third-party provider of the market survey report on behalf of the taxpayer. Subsequently, the foreign related party recovered the amount from the taxpayer “at cost” (no mark-up). The transaction was described as “payment of market survey expenses” in the taxpayer’s transfer pricing documentation, and the taxpayer justified the arm’s length nature of the transaction by application of the CUP method. 

The taxpayer also entered into a service-level agreement with its related party for technical training in relation to the production facility in India. The payments were based on specified hourly rates, and were also supported by application of the CUP method.

Administrative, tribunal findings

The Transfer Pricing Officer challenged the market survey report payment, asserting that the market survey activity was performed for the ultimate benefit of the related party. The Transfer Pricing Officer also looked at the payment for the technical training and conducted a new search of the internet for hourly rates in the related party’s geographic area and based on this, made transfer pricing adjustments. These positions were administratively upheld, and the taxpayer filed for judicial review with the tribunal.

The tribunal held in favor of the taxpayer and found that:

  • The related party had no direct sales to customers in India.
  • The market survey report was specific to the Indian market and that the sole benefit from this expenditure accrued to the taxpayer (not to the related party).
  • The taxpayer’s comparability analysis was correct.

The decision concludes that an expenditure specifically incurred for the Indian taxpayer’s market and to benefit the Indian taxpayer solely cannot be construed to benefit the foreign related party.


Read a June 2018 report [PDF 733 KB] prepared by the KPMG member firm in India

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