India: Tribunal upholds PSM over TNMM; adopts residual profit benchmarking considering each entity's contribution

Tax Controversy & Dispute Resolution ()
Global One, or the Equant Group of companies (the Group or the taxpayer), was engaged in providing services of seamless connectivity and transmission of data for their global customers. Pursuant to the Group’s management, since each of the subsidiaries was to participate in and contribute unique intangibles, and/or transactions between the subsidiaries were so inter-related, the same could not be examined separately to determine arm’s length price of any single transaction under any “one-sided” testing. The Group adopted the residual Profit Split Method (PSM) as the Transfer Pricing (TP) method for its subsidiaries situated across the world.  The Revenue Authorities rejected the application of PSM, and the taxpayer appealed to the Indian Income-tax Appellate Tribunal (the Tribunal).  

The issue before the Tribunal was whether PSM was the most appropriate method based on facts and circumstances of the taxpayer. The Tribunal eventually accepted the arguments of the taxpayer and held in its favour.