Recent Tribunal Ruling (Sulzer Pumps) on Contract Manufacturing
Operations
Recently,Mumbai Tribunal in Sulzer pumps India Pvt. Ltd.
[TS-1156-ITAT-2018(Mum)-TP], had the occasion to distinguishbetween
a 'contract manufacturer' and 'licensed
manufacturer' while highlighting important Transfer Pricing
Principles in connection with the same. The facts and decision are
discussed below.
Conceptual Background
Transfer Pricing documentation and benchmarking is based upon
the functional profile of the tested party. Within the broad
categories of each functionality – manufacturer, distributor
or service provider – there can be various shades of
characterization. For example, a manufacturer can be a full-fledged
manufacturer or a licensed manufacturer or a limited risk
manufacturer such as a contract or toll manufacturer. The monetary
return follows the risk – higher the risk, higher the return
and vice versa. Below is a diagram illustrating the risk-return
relationship
