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The Delhi bench of the Income Tax Appellate Tribunal in India has delivered a favorable ruling for BBC World (India) in a transfer pricing dispute related to the 2004-05 assessment year. The tribunal upheld the decision of the Commissioner of Income Tax (Appeals), asserting that advertisement expenses between group entities should be treated as pass-through costs.
The Indian Income Tax Department had contended that the costs associated with the provision of services should be subject to markup, leading to a transfer pricing adjustment that was contested by BBC. However, the tribunal sided with the broadcaster, affirming that expenses such as advertisement and publicity, business promotion, and participation in trade events were undertaken at the request of BBC World (India) and should be considered pass-through costs.
According to the tribunal's order, the budget for these activities is controlled by the associated overseas entity (AE), and the risk and outcome of the expenses are borne or attributed to the AE. The tribunal further emphasized that the cost of purchasing newspaper advertising space was deemed "too high" and required minimal effort, qualifying it as pass-through costs.
The ruling comes in the wake of an investigation by India's Income Tax Department, which sent agents to BBC's offices in Mumbai and Delhi in February. While initially seen as a potential retaliation by the government for a critical documentary aired by the BBC, the tribunal's decision pertains to a different period and is reportedly unrelated to the search operation.
This ruling adds a positive note for multinational entities navigating transfer pricing challenges in India, showcasing the significance of considering pass-through costs in the determination of related-party expenses. The decision aligns with the evolving landscape of transfer pricing regulations globally and the need for a nuanced approach in assessing intercompany transactions.
By fLEXI tEAM
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