In a recent decision, the Chennai Bench of the Income-tax Appellate Tribunal held that the list price on a manufacture’s website is only an “indicative price” and so the list price alone cannot be used to determine the arm’s length price of manufactured goods in international transactions under the Comparable Uncontrolled Price (CUP) method.
The taxpayer had adopted the transactional net margin method (TNMM) in a transfer pricing study in respect of cross-border transactions in goods. Its foreign related party had however provided price comparisons based on manufacturer list prices. The transfer pricing officer in the tax administration therefore maintained that the comparable uncontrolled price (CUP) method was the most appropriate method as these prices could be used by the taxpayer as comparable.
The taxpayer contended that the CUP method could not be used as the list prices were only indicative of the prices that might be charged for the goods. Also, the data used by the related party was not available in the public domain.
The tribunal rejected the taxpayer’s argument that the list price could not be used because it was in the public domain. It agreed however that the list price was only indicative of the price that might be charged. The Tribunal held that a transfer pricing study using the CUP method required the use of prices actually charged between unrelated parties or by the taxpayer with unrelated parties, and could not be performed on the basis of list prices.
