Transfer Pricing Adjustment For Excessive Marketing Expenses Taking A Twist In India

Background

The Delhi bench of the Income Tax Appellate Tribunal in a recent ruling in the case of Luxottica India Eyewear Pvt Ltd (ITA No. 344/Del/2017) has given a new dimension to the issue of excessive spend on Advertisement, Marketing, and Promotion expenses (AMP) in India. The Tribunal has scanned the relatively new approach adopted by the Tax Authorities of making an "AMP intensity adjustment" to factor in the "marketing function" and brand value creation done by the Indian distributors on behalf of its Associated Enterprises (AE) who is the brand owner, as an alternative to applying the bright line test.

The facts and observations of the case are discussed below:

Facts of the case