Transfer-pricing rules cannot benchmark independently agreed royalty payments without evidence of an associated-enterprise relationship, requiring deletion of disallowance.

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....Transfer-pricing provisions apply to transactions between associated enterprises and cannot be used to benchmark royalty paid to an independent foreign licensor unless material establishes a deemed associated-enterprise relationship through a prior agreement or specific arrangement. Where the licensor was not disclosed as related and no such material existed, the royalty transaction remained independent. A bona fide royalty rate agreed under a licence agreement could not be disallowed under section 37 merely because it was considered excessive by reference to external royalty comparables. The royalty disallowance was deleted; remaining grounds were left open.....