Nestle India pays a royalty to its Swiss parent company for the use of its brand and intellectual property. Recently, shareholders rejected a proposal to increase these royalty payments. This article analyses these issues surrounding royalty payments to foreign associated enterprises (AEs), highlighting the concerns of both shareholders and Indian tax authorities. The key points of discussion include:

‣ Determining a Fair Royalty Amount

‣ Tax Department's Perspective on Royalty Payments

‣ Justifying Royalty Payments