Western India Regional Council of
The Institute of Chartered Accountants of India

Law Update Details

 
February 2019 CA. Bhavya Goyal
 

CBDT extends date of filing CBCR

As a one time measure CBDT extends the date of filing CBCR to March 31, 2019 for constituent entities referred to u/s 286(4) (a)/(aa) in respect of reporting accounting years ending upto February 28, 2018.

Transfer Pricing Litigation update

M/s. PepsiCo India Holdings Pvt Ltd. vs. ACIT [AY 2006-07 to 2013-14] Delhi ITAT

Delhi ITAT deletes Advertisement, Marketing & Sales promotion (“AMP”) adjustment for Pepsi Co India for AYs 2006-07 to 2013-14. It holds that there is no international transaction in the form of any agreement/ arrangement on AMP expenditure incurred by the assessee and under the FAR analysis also, no such benefit from AMP expenditure having any kind of bearing on the profits, income, losses or assets has accrued to the AE.

It was held that the part of AMP-expenditure pertaining to reimbursement to Ireland AE towards sponsorship fee paid to ICC for cricketing events, was purely for assessee’s business promotion. It was further held that “it cannot be held that such a transaction though amounts to international transaction under the Act, requires determination of ALP… if at all, ALP was to be determined then it should have been strictly circumscribed to the reimbursement of the cost…and cannot be expanded to the entire expenditure of AMP”.

ITAT rejects characterization of AMP spend as international transaction holding that expenditure was not incurred “at the instance or behest of overseas AE nor there was any mutual understanding or arrangement or allocation or contribution by the AE towards reimbursement of any part of AMP expenditure..”. The Hon’ble ITAT also rejected the Revenue’s contention that assessee’s huge AMP spend amounts to brand building for AE, It noted that “value of the brand which has been created in India by the assessee company will only be relevant when at some point of time the foreign AE decides to sell the brand... But to make any transfer pricing adjustment simply on the ground that assessee has spent advertisement, marketing expenditure which is benefitting the brand/trademark of the AE would not be correct approach”, it relies on Maruti Suzuki HC ruling. It observes that AE (legal owner of the trademark) had neither charged royalty to assessee nor performed any relevant function or used any assets or assumed any risk but only acted as a title holder. Thus, ITAT concludes that “...there seems to be no reason as to why it should compensate its subsidiary in India for the marketing activities while operating in India as a full-fledged manufacturer who alone is reaping the profit from the operation in India”, relies on Final Report of Actions 8-10 of the BEPS Project which suggests that no adjustment is required on AMP expenditure incurred by full-fledged manufacturers.

 

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