The Resource International case law : part 1

International case law : part 1

International case law : part 1
International case law : part 1
QUESTIONS: With regard to the following Indian case law, what would be the relevant position in your jurisdiction, taking into account your national legislation, case law, guidance and practice? l. Cheil India Private Limited: 1. With regard to the Delhi Tribunal ruling in the case of Cheil India on "pass-through costs" of agents/ intermediaries: a. How would non value-adding/ pass through costs be dealt with for the purpose of computing operating profitability, e.g. costs related to advertisement placement/ obtaining advertising space on behalf of customers incurred by advertising agencies, or payments made to clinical research organisations/ external agencies by pharmaceutical companies, or third party vendor costs incurred for facilitating logistics, etc.? b. How would aspects such as risks, level of functions, etc. carried out by the taxpayer in order to conclude which activity/ cost could qualify as non value-adding or pass through in nature, be determined? ll. Wrigley India Private Limited: 2. With regard to the Delhi Tribunal ruling in the case of Wrigley, which compared licensed manufacturing margins for domestic business with contract manufacturing margins for export business: a. For the purpose of comparability, how would tax authorities of your country deal with the evaluation of different business segments of a taxpayer wherein the FAR profiles and business models of the segments have differences in the level of functions performed and risks assumed by companies in relation to end customer facing businesses, where they act as entrepreneurs (exploiting trade and marketing intangibles), as opposed to when they deal with related parties, say in the capacity of contract manufacturers? b. In the situation referred to in question 2.a. above, would tax authorities of your country compare the margins of the two business segments by making rule of thumb adjustments for differences in FAR profiles or refrain from comparing the margins of the licensed manufacturing or domestic business with those of the contract manufacturing business? lll. Agility Logistics Private Limited: 3. With regard to the Mumbai Tribunal ruling in the case of Agility, where a split of net revenue (50:50) has been accepted as a CUP: a. Would a sharing of net revenue between two related parties be accepted for the purposes of applying the CUP method on the basis that this was the industry norm? b. Could the CUP method be held to be inapplicable in the circumstances referred to in question 3.a. on the ground that the said method can only apply for comparing absolute prices and not net revenue sharing arrangements? lV. Serdia and Fulford: 4. With regard to the Mumbai Tribunal rulings in the cases of Serdia and Fulford, wherein the implications of the Glaxo Canada ruling were discussed in detail: a. How is the CUP method applied to the import of branded products from related parties for resale, when the products are accompanied by a licence or right to use intellectual property (IP), and in particular can the transaction price be compared with the market price of similar unbranded products, which do not involve the licensing of any right to use IP? b. Could the import prices of off-patented or generic APIs imported from related parties for conversion into a full dosage form of medicines, and sold under a trademark or brand licensed from such related parties, be compared with the market prices of generic products of the same or similar formulation? V. Bayer Material: 5. With regard to the Mumbai Tribunal ruling in the case of Bayer Material, in which companies having 100 percent controlled transactions were accepted as comparables and also, agency commission rates were applied on an arguably arbitrary basis: a. If a company undertakes both distribution and agency activities for products manufactured by overseas related parties, would the differences in the level of functions, assets and risks assumed by the company for the two categories of activities be taken into account, and different pricing basis be used, e.g. a return on value-adding costs or the Berry Ratio for agency activities, as against a return on sales for distribution activities? b. Could companies having 100 percent controlled transactions with their respective related parties be accepted as comparables for the purposes of testing the results of the taxpayer? c. In the case of marketing agents or procurement service companies, would the resultant return on the value added costs (e.g. operating profit divided by value added cost) in the hands of the taxpayer be taken into account, when applying third party commission rates available from different sources?
Citation source
In: Transfer pricing forum. - Arlington. - Vol. 3 (2012), no. 3 (September) ; 98 p
Geographic coverage
Language note
  • case law
  • transfer pricing
  • associated enterprises
  • TNMM
  • arm's length principle
  • arm's length range
  • comparable profits method
  • CUP method
  • pharmaceutical industry
  • intellectual property
International case law : part 1

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