Transfer pricing of AMP spend: full-fledged distributor's higher operating margin defeated further adjustment and bright line test was rejected.

Advertisement, marketing and promotion expenditure was examined in the context of the assessee's full-fledged distributor profile and overall operating margin. Applying Delhi High Court transfer pricing principles and rejecting the bright line test, the Tribunal found that the assessee's margin exceeded that of the comparables and that it had already been suitably compensated for the functions performed. Any benefit to the foreign associated enterprise was only incidental, so no separate segmentation or further transfer pricing adjustment of the AMP spend was warranted.

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Issues: Whether advertisement, marketing and promotion expenditure could be treated as a separate international transaction warranting transfer pricing adjustment, and whether the assessee had already been adequately remunerated through its overall operating margin.

Analysis: The assessee was a full-fledged distributor and the expenditure on advertisement and marketing had to be examined in the context of the overall functional profile and comparables. The Tribunal applied the Delhi High Court's transfer pricing principles, including the rejection of the bright line test, and noted that the assessee's operating margin was better than the margins of the comparables. On that basis, it held that the assessee had already been suitably compensated for the functions performed and that any benefit to the foreign associated enterprise was only incidental. No further segregation or adjustment of the AMP spend was found warranted.

Conclusion: The AMP expenditure was not to be treated as requiring any further transfer pricing adjustment, and the issue was decided in favour of the assessee.

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