The key issue is whether the Resale Price Method (RPM) is appropriate for determining the Arm’s Length Price (ALP) for a distributor incurring Advertisement, Marketing, and Promotion (AMP) expenses. The assessee, a joint venture between a UK luxury brand and an Indian entity, imports and resells luxury goods without adding value. The Transfer Pricing Officer (TPO) and Dispute Resolution Panel (DRP) rejected RPM due to high AMP expenses.
However, authoritative guidance and judicial precedents support RPM in such cases. The UN Transfer Pricing Manual (2021) prioritizes functional comparability over product comparability for RPM. OECD guidelines state that RPM is suitable when a distributor resells goods without further processing. The Bombay High Court (L’Oréal India, 2015) and the Delhi High Court (Burberry India, 2019) upheld RPM despite AMP expenses.
Given these precedents, the TPO’s rejection of RPM appears incorrect, as AMP expenses alone do not disqualify its application when the distributor operates on a limited-risk resale basis.
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