Why promotional expenses have been a subject matter of tax litigation

Domestic entities that incur huge advertising, marketing and promotion expenses are helping create marketing intangible for a foreign associates enterprise, says M S Ananth of Nishith Desai Associates

Why do AMP expenses lead to tax disputes?

Advertising, marketing and promotion (AMP) expenses incurred by an Indian entity may cause benefit to an overseas related party or an associated enterprise (AE). Treatment of AMP expenses is an issue that has risen in transfer pricing regulations under the Income Tax Act, 1961, which regulates ‘International Transactions’ between two or more AEs.

International transactions have a wide and inclusive definition under the IT Act. AE is defined in the IT Act and includes related parties as defined under Indian law.

The transfer pricing (TP) regulations provide that transactions