ITAT Holds Corporate Guarantee as International Transaction, Grants Relief to Tega Industries by...

The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) has held that providing a corporate guarantee to an associated enterprise is an "international transaction" and is subject to transfer pricing provisions. However, the tribunal provided significant relief to the taxpayer, Tega Industries, by restricting the transfer pricing adjustment to a fee of 0.5% of the guarantee amount. The Transfer Pricing Officer had proposed a much higher adjustment. The ITAT, after considering various judicial precedents, concluded that while a corporate guarantee has an economic value and must be benchmarked, the fee for such a guarantee should be a nominal one. The 0.5% rate was deemed to be an appropriate arm's length price for the guarantee provided. This ruling provides crucial guidance on the benchmarking of corporate guarantees, a contentious issue in transfer pricing, offering a reasonable standard for taxpayers and tax authorities.