Multinational Corporations asked to pay 15% higher tax on ad spend

The tax department has raised its demand by 15% on the promotional expenditure of multinationals, adding in their list – expenses made by them on advertising, marketing, and sales promotion (AMP) as stated in an official report. Several MNCs, especially selling the fast moving consumer goods and several others have been served with an AMP notice for the first time.

While at present the total tax demand on top MNCs stands to about Rs 13,000,as compared to last year which was only Rs 11,000. Experts prompt the comparative change of demand to be a resulting effect of a change in the methodology of the tax department for calculation of tax with the inclusion of more taxes to be levied on their promotional expenditure.

The department supposes and says that the AMP spend of multinationals is very huge and is still increasing much higher than the industry average. As observed, such expenditure is usually prompted for global promotion of the brand rather than for local, for which they must be subject to tax.

Tax experts are of the view that several MNCs are fighting their old cases related to AMP taxes imposed and their declining revenues shares due to the policy. Different multinationals are litigating at their respective level to fight AMP.

Some industry experts are in the view that ‘Imposition of AMP has been one of the biggest transfer pricing issue and many companies have seen a rise in their tax demands in the last few years due to this. ‘Companies will continue to litigate against such policies until they get clarity on the tax changes imposed’ some industry experts says.

‘Earlier, the revenue department made use of a bright line test or some other derivatives to calculate AMP tax demands. At present some new terminologies have been defined. The new methodology takes in the total advertising expenditure of the MNCs and disallows about 50% of it on grounds of brand building ‘the industry experts added.

The tax department claims that multinationals are creating marketing intangibles in name of AMP (advertising, marketing, and promotion) and taxes should be levied on them. AMP is regarded as a cost and hence is not taxable, but as they are disallowed they result in more profits and hence attract more taxes indirectly.

The tax experts are in the view that while multinationals are benefitting from brand building, also India won’t get anything other than total taxes paid by them on their product sales, as these brands may not get registered in India and hence would secure themselves from tax on brand sales.

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