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Delhi Court Rules On Transfer Pricing Of Trademarks

by Mary Swire, Tax-News.com, Hong Kong

09 July 2010


The Delhi High Court has set aside a claim by the Indian income tax authorities that the royalty paid by Maruti Suzuki India to its Japanese parent, Suzuki Motor Corporation, for using the latter’s ‘S’ logo on cars sold in India should be disallowed as a deductible expense.

The High Court also set aside a decison that the parent Suzuki Motor Corp (SMC) should have compensated Maruti Suzuki India (MSIL) for adding value to the Suzuki brand through its promotion campaigns. Consequently advertising expenses should be also allowable as deductible expenses.

However the High Court instructed the tax authority to assess the arm’s-length price of the benefits obtained and obligations incurred by both parties under the agreement in order to compare it with the payment made by MSIL.

The tax authority had claimed that MSIL, by using the trademark “Maruti-Suzuki” instead of “Suzuki” alone, had “piggybacked” on the “Maruti” trademark without payment of any compensation by SMC to MSIL.

In this case, the Delhi High Court found that the authority had failed to substantiate:

  • The invalidity of MSIL’s arm’s length pricing policy (and had not given MSIL an opportunity to contest the authority's own pricing determinations) ;
  • The grounds on which the proposed adjustment was made (and Maruti Suzuki had no opportunity to controvert the adjustment) ;
  • The lack of comparability between the payment made by Maruti for mandatory use of the Suzuki trademark with the payment an independent entity would have made to any other company in similar circumstances; and
  • That the advertising expenses incurred by the domestic entity exceeded the expenses which a similarly situated and comparable independent domestic entity would have incurred.

According to the High Court, the authority needed to identify appropriate comparables and make suitable adjustments considering the individual profiles of these entities and other facts and circumstances justifying such adjustments.

This comprehensive report in our Intelligence Report series examines the global and national landscapes in which companies can use transfer pricing to improve their after-tax returns, including summaries of recent developments in design of the corporate supply train, the usefulness of 'offshore' in international corporate tax planning, and a section covering the spread of DTAAs and CFC laws. It is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report16.asp
TAGS: tax | business | trademarks | India | law | intellectual property | corporation tax | multinationals | transfer pricing | trade

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