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(a) by reducing the import price, or
(b) by applying a residual profit split method, or
(c) by getting a direct reimbursement of the excess expenditure from the owner of the intangible.

1.25 This, in the humble observation of the Appellant, is an extremely important determination for evaluating the issue of excessive AMP spend in relation to local marketing intangibles. The Discussion Draft clarifies that the level of AMP expenses and profitability of the distributor/marketer entity are indeed closely linked factors and cannot be detached or treated separately for the evaluating the issue of excessive AMP spend.

"(a) Reducing the price paid by B for the Rist watches purchased from A. One way of effecting such an adjustment might be to apply a resale price method or transactional net margin method using available data about the profits made by comparable independent marketers and distributors during the corresponding years of similar long-term marketing and distribution agreements. An alternative might be to apply a residual profit split method. This method would split the combined profits from sales of the branded watches by first giving B and A a basic return for the functions they perform and then splitting the residual profit on a basis that takes into account the intangible assets owned by B and A 11 and the relative contributions of both B and A to the value of the trade name Rist. 
            i.      Reducing the price of the goods, i.e. by allowing a higher gross
                    margin; or
            ii..    Reimbursement of the excess AMP spent; or
            iii. Applying a residual profit split method.
The TPO has not applied a residual profit split method and therefore one need not dwell further on the same. It has been explained earlier before the TPO, DRP and the Hon'ble Tribunal that BMW India had been more than adequately compensated for its incremental AMP spent by BMW AG through an adjustment to its import prices.

6.26. In support of the remuneration model of the assessee who is a distributor rewarded by way of price adjustments to ensure profitability upto mutually accepted terms is a well-recognized and well-accepted method for compensating a distributor. In support of the said methodology of compensation, reliance on behalf of the assessee has been placed on the OECD Guidelines (copy of the discussion draft on TP aspects of Intangibles issued by OECD Chapter V1 placed at pages 131-192 of the paper book and Australian Tax Guidelines (copy of the Australian Tax Officer "ATO") Guidelines on Marketing Intangibles placed at pages 193-203 of the paper book title "Compendium of Statutory and Judicial Rulings Guidelines"). Addressing the examples illustrating the position in the OECD Guidelines, Ld. AR has canvassed that a distributor can be remunerated for the services/functions performed either by adjusting the pricing or by compensating the entity directly for excess marketing advertisement expenditure or by applying residual profit split method. In the facts of the assessee's case the adjustment has been based on the pricing so as to ensure adequate representative profits earned after meeting the cost of the goods sold. Similar view has been taken by the Australian Guidelines which has also been relied upon by the Ld. AR. Specific attention was invited to example 3 at page 200 of the paper book so to submit that price adjustment; direct compensation for the excess spend or resale price method are the ways in which a distributor can be remunerated for the functions which may be performed over and above what routine function a normal distributor would have performed. In the facts of the present case, it has been emphasized that for exploiting the brand logo etc, no royalty has been paid by the assessee to its foreign AE. It is also necessary to note the fact that the AE has provided the assessee with a loan at a rate better than the external bench-mark, the average PLR as per the assessee's TP study is 13.30% and the BMW India's effective Rupee cost on the loan is 7.43%. This fact is borne out from the para 5.12.7 at page 54 whereas the projected financial information for 2008-09 to 2010- 11 addressing marketing cost is placed at page 69.