Delhi High Court Upholds Royalty Payments in Samsung India Transfer Pricing Case

11 July 2024

The High Court of Delhi examined a transfer pricing dispute concerning royalty payments made by Samsung India Electronics Pvt. Ltd. to its Korean parent company under a technology licence agreement. Following a tax audit, the Indian tax authorities disallowed the royalty, characterising Samsung India as a contract manufacturer and concluding that the payments were not at arm’s length.

On appeal, Samsung India argued that it operated as a full-fledged licensed manufacturer, bearing significant business risks and independently conducting manufacturing and sales activities. It contended that the royalty reflected the value of the licensed technology and was consistent with arm’s-length principles.

In its July 2024 judgment, the High Court of Delhi upheld the taxpayer’s position and affirmed the findings of the Income Tax Appellate Tribunal. The Court found that Samsung India was not a contract manufacturer and that the royalty payments were commercially justified and deductible.

The decision underscores the importance of accurate functional characterisation in transfer pricing disputes and confirms that royalty payments cannot be disallowed solely on the basis of group affiliation.

Find the Full English Translation Here: India vs Samsung India Electronics Pvt. Ltd., July 2024, High Court of Delhi, Case No ITA 40/2018 - TPcases