Suzuki Royalty TP case –Facts • Maruti Suzuki Motor Corporation (“Suzuki”), a Japanese company, owned over 50% of Maruti Suzuki India (“Maruti”), an Indian company. • Suzuki licensed the brand and technical know-how to Maruti to use it in India, in return, Maruti paid Suziki a lump-sum royalty and royalties based on the FOB value of certain components that Maruti will use to manufacture using the technology provided by Suzuki. • Suzuki didn’t have to make any payment to Maruti • India’s tax authority (TPO) stated that Maruti should be compensated for use of the Suzuki brand on the Maruti automobiles • High Court of Delhi found in favor of the defendantMaruti and rejected the TPO’s arguments
The Arguments • Tax Authority's Arguments: • The use of the Suzuki brand on Maruti automobiles effectively constituted the sale of the Maruti brand to Suzuki • Maruti was owed an arm’s-length royalty for the piggybacking, use of the Maruti brand on the co-branded trademark “Maruti Suzuki,” and impairment of the Maruti brand. Taxpayer's Arguments: • Maruti asserted that there had been no transfer of the Maruti brand • Maruti argued that by using Suzuki’s trademark it had received a large benefit while Suzuki received no benefit. • Maruti demonstrated that its advertising expenses over the 13 years were commensurate with comparable companies’ advertising expenses and its royalty-to sales ratio was lower than other companies
High Court of Delhi Decision • High Court of Delhi stated that the use of the Marutiname was within the discretion of Maruti and not granted to Suzuki or contained in any legal agreement • The court also found that Maruti was justified in entering into the License Agreement and paying an appropriate royalty to Suzuki for the use of its trademark
Implications • This case illustrates the Indian tax authorities' application of marketing intangibles and the application of international standards • Maruti Suzuki suggests the increasing attention from tax authorities over the value of marketing intangibles • This case demonstrates what data should be used for benchmarking when dealing with India tax authority
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