Brand Promotion Expenditure - A Critical Analysis from the Perspective of Indian Transfer Pricing

Abstract

Brand promotional expenditure has become a subject of great interest in the Indian Transfer Pricing circle after the decision of Delhi High Court in the case of Maruti Suzuki vs ACIT, TPO. This expenditure is spent to create an intangible asset even though they may have no book value in the company’s Balance Sheet. The decision of the Delhi High Court has triggered a lot of debates as it has proposed an altogether new methodology to determine whether the brand promotional expenditure incurred by the Indian entity benefited the foreign holding company.This paper seeks to analyse the brand promotional expenditure from the bird’s eye point of view by tracing to its origin (i.e., Glaxosmithkline-US Case) and the methods used by different countries to determine whether brand promotional expenditure is at arm’s length. This paper also analyses various decisions of the High Courts (HC) and Income Tax Appellate Tribunals (ITATs) of India.