Case Law Details
The Delhi High Court (HC), in a writ petition filed by Maruti Suzuki India Ltd. (Taxpayer) [WP.(C) No. 6876/2008] against the order of the Tax Authority, has ruled on transfer pricing (TP) aspects of marketing intangibles in respect of a licensing arrangement between the Taxpayer and its associated enterprise (AE), Suzuki Motor Corporation, Japan (Suzuki).
In its ruling, the HC, besides reiterating a number of key TP principles, has provided guidance on the circumstances under which a legal owner of a marketing intangible, such as a trademark or a brand name, should compensate a licensed affiliate for its promotional efforts that has the effect of enhancing the value of the intangible. The HC held that if the advertising, marketing and promotion (AMP) expenses, incurred by the licensed affiliate using the trademark/brand name, are more than what a similarly situated and comparable enterprise would have incurred, the owner of the intangible needs to suitably compensate the licensed affiliate for the advantage obtained by it in the form of brand building and increased awareness of the intangible. In such a situation the arm’s length price (ALP) for the arrangement would need to be determined taking into consideration all the rights obtained and obligations incurred by the AEs. Furthermore, to determine whether the AMP expenses incurred are more than what a similarly situated and comparable enterprise would have incurred, it would be necessary to identify appropriate comparables for the purpose of comparison.
It would be useful for multi-national enterprises with Indian affiliates to assess the impact of the ruling on their intra-group arrangements relating to use of trademarks/brand names in India.
Background and facts
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