Royalty transfer pricing adjustment failed where comparables, MAP settlement and APA support showed no material factual change.

The royalty transfer pricing dispute concerned whether the arm's length price for payments to a non-UK associated enterprise could be rejected despite CUP benchmarking, TNMM corroboration, and support from comparable group agreements. The record indicated that the UK and non-UK licences were substantively similar, no material product difference justified a different royalty rate, and the adjustment relied on a single comparable with an ad hoc further reduction lacking factual basis. MAP settlement for the same assessee and a later APA covering identical royalty transactions were treated as persuasive, and consistency was applied because no material change in facts was shown. The adjustment was therefore unsustainable and the royalty was accepted under the APA and MAP parameters.

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Issues: Whether the transfer pricing adjustment on royalty paid to the non-UK associated enterprise was sustainable, and whether the arm's length price should be determined by accepting the taxpayer's benchmarking supported by comparable agreements, TNMM corroboration, consistency with past and subsequent years, MAP settlement and APA parameters.

Analysis: The royalty dispute turned on comparability of the non-UK technology transfer arrangement with the UK and other group agreements. The taxpayer relied on CUP benchmarking, TNMM as corroborative support, the MAP settlement for UK entities for the same assessment year, and a subsequent APA covering identical royalty transactions with UK entities. The record showed that the agreements for the UK and non-UK entities were similarly worded in substance, the licensed products were not shown to be materially different in a way that warranted a different royalty regime, and the transfer pricing adjustment was made by first selecting a single external comparable and then reducing the rate further on an ad hoc basis without adequate factual foundation. In these circumstances, the earlier MAP and later APA were treated as having strong persuasive value for the same assessee, and the principle of consistency was applied where the revenue failed to demonstrate a material change in facts.

Conclusion: The transfer pricing adjustment on royalty was held unsustainable, and the royalty payment to the non-UK associated enterprise was directed to be accepted on the basis of the parameters recognized in the APA and MAP framework.

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