Tax dispute intensifies over marketing and ad expenses of MNC subsidiaries

The tax authorities argue that these AMP expenses incurred by MNC subsidiaries enhance the value of trademarks or brands owned by the foreign parent entities

On May 20, the Delhi High Court, in a matter about taxing PepsiCo India’s advertising, marketing, and promotion (AMP) expenses, said the bright line test (BLT) was not a valid methodology. Earlier, too, in a case involving Sony Ericsson, the Court held that BLT was not a valid method under India’s transfer pricing rules and lacked statutory mandate.

However, in a case involving LG Electronics India, a special bench of the Delhi-based income tax appellate tribunal (ITAT) accepted BLT as a tool to determine the arm’s length nature of the AMP expenditure, while contending that part of it was an international