Cross-border payments for software, brand use, or know-how raise a recurring transfer pricing question: how much of the payment compensates the foreign parent for genuine IP use, and how much constitutes profit shifted out of the local entity. India has addressed this question primarily through tribunal litigation. Samsung, Sony, Vodafone Idea and other taxpayers have contested the same AMP/royalty issue across multiple assessment years, with outcomes turning on functional characterisation: whether the Indian entity operated as a full-risk licensed manufacturer or a disguised contract manufacturer, and whether the royalty comparable used by the TPO was genuinely similar. In its August 2026 ruling on Samsung India, the Delhi ITAT found that the TPO had benchmarked a consumer electronics brand licence against royalty agreements from the agricultural and biotech sectors, a comparison the tribunal rejected along with roughly ₹7,800 crore in other adjustments.
Australia has taken a structurally different approach. On 4 September 2026, the ATO finalised Taxation Ruling TR 2026/2, addressing when cross-border software and IP payments constitute royalties, and released draft Practical Compliance Guideline PCG 2026/D4 alongside it. The PCG sets out a five-zone, colour-coded risk framework, from white to red, that software distributors use to self-assess their royalty withholding exposure.
The zones rest substantially on a quantitative trigger: an Australian distributor's operating margin relative to its global group's margin, with a 10-percentage-point band used as a proxy for whether an embedded royalty sits inside an otherwise 'royalty-free' distribution arrangement. Consultation on the draft PCG closed on 2 October 2026. The same package included a Decision Impact Statement on the Oracle case, confirming that MAP and treaty arbitration remain available even where domestic litigation on the same royalty question is still running in parallel.
The two approaches differ in method and cost. India's approach is precedent-driven and functionally granular: each case requires its own FAR analysis, its own comparable search, and its own tribunal hearing, sometimes across a decade of appeals before the characterisation question is settled for that taxpayer and that year. Australia's approach is administrative and mechanical: a margin threshold either trips a risk flag or it does not, without relitigating functional characterisation in every case.
Each method has a cost. India's approach protects taxpayers from being classified on crude proxies, but generates litigation overhead that both the department and taxpayers have raised concerns about for years. Australia's approach is more scalable and predictable, but practitioners have already flagged that a single margin band applied uniformly across SaaS, cloud and subscription models may catch arrangements unrelated to embedded royalties.
The comparison is relevant to Indian practice independent of the Australian context. CBDT has, over the last two budget cycles, moved India's TP regime toward more systemised and less discretionary processes: block assessments that carry a TPO's margin determination forward two years, a rationalised safe harbour regime with fixed bands by transaction category, and a stated intent to limit automated-analytics flags from triggering full scrutiny unless paired with other evidence of evasion. This is consistent with a shift toward rules-based risk-zoning, though the department has not framed it in those terms.
If CBDT, or an AI-assisted TPO, were to adopt a quantitative first pass for royalty and FTS characterisation along the ATO's lines, drawing on CbCR and segmental data the government already collects, such a system could replace inconsistent manual judgment with predictable, published zones. It could equally reproduce the same reliance on a mismatched comparable that the Samsung tribunal had to correct, embedded instead in a model that taxpayers outside the department cannot audit.
The ATO's framework was put out for public comment; an Indian equivalent, if one emerges, may not follow the same consultative process. For TP practitioners, that difference in process, more than the underlying royalty question, is worth tracking as India's own risk-assessment tools develop.
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