Sony Ericsson vs CIT rejected the tax department's mechanical Bright Line Test for AMP spend — but confirmed advertising and marketing expense can still be an international transaction requiring a proper transfer-pricing defence. This is the FAR documentation and benchmarking discipline MNC subsidiaries run to stay ahead of the challenge.
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01 / 06
Establish whether AMP is an international transaction at all
- Check for any explicit or implicit arrangement with the parent that mandates or directs specific AMP spend levels in India.
- Where no such arrangement exists, document that absence deliberately — it's the single strongest fact in Sony Ericsson-line defences.
- Distinguish routine, India-driven marketing spend from spend that was clearly directed or reimbursed by the parent — only the latter is genuinely at risk.
02 / 06
Pre-empt the Bright Line Test before it's raised
- Don't wait for the department to apply AMP-as-percentage-of-sales against an industry average — commission a proper economic analysis before the assessment, not in response to it.
- Benchmark AMP intensity against genuinely comparable independent distributors in the same industry, not an arbitrary bright-line average across unrelated sectors.
03 / 06
Build the FAR documentation
- Document that the Indian entity bears real marketing risk and makes its own AMP spending decisions, rather than executing a budget set by the parent.
- Show that AMP spend converts into the Indian entity's own sales and market share — the primary beneficiary argument matters more than the brand-building-for-the-parent argument.
- Where the Indian entity operates as a full-risk distributor rather than a limited-risk marketing-support entity, that classification itself is a material part of the defence.
04 / 06
Quantify any conceded marketing-intangible contribution defensibly
- If some contribution to the parent's brand is conceded, quantify it through a residual-profit-split or comparable-margin approach, not the department's bright-line excess figure.
- Where the Indian entity's overall operating margin already sits at arm's length, that fact itself undercuts the argument that it's providing an uncompensated service to the parent.
05 / 06
Maintain contemporaneous documentation
- Keep board-approved marketing budgets that show India-specific rationale, not a budget handed down from the parent.
- Retain local marketing-agency contracts and campaign records that demonstrate India-based decision-making.
- Track segment-level profitability showing AMP spend driving India sales growth, not just brand equity for the group.
06 / 06
Track the case law forward from Sony Ericsson
- Sony Ericsson set the framework in 2015, but tribunal rulings since have varied in how strictly they apply it — the defence has to be current, not built on the 2015 judgment alone.
- Revisit the TP documentation position at least annually against the latest tribunal and High Court decisions on marketing intangibles.