TP issues surrounding marketing intangibles
18 January 2012
It is uniformly accepted that transfer pricing in India is becoming more and more complex. The tax authorities often take stands on transfer pricing treatment, especially of marketing intangibles, that are diverse and aggressive when compared to the rest of the world. Rohan Shah, Ajit Tolani and Ashish Bhatnagar of Economic Laws Practice discuss some of the recent rulings on marketing intangibles from India and the best practice approaches that taxpayers can adopt to avoid scrutiny.
Post the 1991 Indian economic liberalisation, the government introduced transfer pricing regulations in India in 2001 with an aim to curb the possibility of misuse of the country's tax laws through tax leakages from tax avoidance. However it is increasingly found that the Indian authorities have treated transfer pricing as a revenue generation mechanism by aggressively creating tax demands through transfer pricing adjustments. The last few years have witnessed a spate of transfer pricing adjustments on complex issues using new concepts like marketing intangibles (MI). This approach can be gauged from the recently concluded audits for financial year 2007-08 where transfer pricing adjustments on account of the single issue of MI alone were approximately $1 billion across various industry sectors in India.
The Indian experience
In the Indian set-up, a typical structure would involve the foreign associated enterprise (AE), which is the legal and commercial owner of the intellectual property (IP)...
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