Maruti Suzuki Indian V. India Transfer Pricing Office

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Maruti Suzuki Indian V. India Transfer Pricing
Office
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Suzuki Royalty TP case Facts

• Maruti Suzuki Motor Corporation (Suzuki), a
  Japanese company, owned over 50 of Maruti Suzuki
  India (Maruti), an Indian company.
• Suzuki licensed the brand and technical know-how
  to Maruti to use it in India, in return, Maruti
  paid Suziki a lump-sum royalty and royalties
  based on the FOB value of certain components that
  Maruti will use to manufacture using the
  technology provided by Suzuki.
• Suzuki didnt have to make any payment to Maruti
• Indias tax authority (TPO) stated that Maruti
  should be compensated for use of the Suzuki brand
  on the Maruti automobiles
• High Court of Delhi found in favor of the
  defendant Maruti and rejected the TPOs arguments

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The Arguments

• Taxpayer's Arguments
• Maruti asserted that there had been no transfer
  of the Maruti brand
• Maruti argued that by using Suzukis trademark it
  had received a large benefit while Suzuki
  received no benefit.
• Maruti demonstrated that its advertising expenses
  over the 13 years were commensurate with
  comparable companies advertising expenses and
  its royalty-to sales ratio was lower than other
  companies

• Tax Authority's Arguments
• The use of the Suzuki brand on Maruti
  automobiles effectively constituted the sale of
  the Maruti brand to Suzuki
• Maruti was owed an arms-length royalty for the
  piggybacking, use of the Maruti brand on the
  co-branded trademark Maruti Suzuki, and
  impairment of the Maruti brand.

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High Court of Delhi Decision

• High Court of Delhi stated that the use of the
  Maruti name was within the discretion of Maruti
  and not granted to Suzuki or contained in any
  legal agreement
• The court also found that Maruti was justified in
  entering into the License Agreement and paying an
  appropriate royalty to Suzuki for the use of its
  trademark

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Implications

• This case illustrates the Indian tax authorities'
  application of marketing intangibles and the
  application of international standards
• Maruti Suzuki suggests the increasing attention
  from tax authorities over the value of marketing
  intangibles
• This case demonstrates what data should be used
  for benchmarking when dealing with India tax
  authority

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