Hindustan Unilever Limited (HUL), one of the leading companies in the fast-moving consumer goods (FMCG) sector, reported that it had been receiving a tax assessment order for the 2020-2021 fiscal year (Assessment Year 2021-2022) in the amount of ₹1,986.25 crore. The demand was issued by the Assistant Commissioner of Income Tax, Central Circle 5(2), Mumbai, under Section 156 of the Income Tax Act.
Transfer Pricing Adjustments and Corporate Deductions
According to the notification, the order includes Transfer Pricing adjustments related to the non-deduction of related party payments and observations on the tax depreciation claimed by the company.
In the first case, the tax authorities question the deductibility of payments to related entities, considering that some intra-group services or management fees would not have generated sufficient profits for HUL, or that the amounts paid do not reflect market value.
Regarding depreciation, the authority reviewed the classification and residual value of certain assets, determining that the deductions applied exceed what is permitted by current regulations, which increases the tax base.
These adjustments reflect the Indian tax authorities’ stricter approach to related-party transactions, ensuring compliance with the Arm’s Length Principle and the correct application of accounting and tax rules.
HUL, in turn, indicated that this resolution will not significantly affect its financial results and will appeal within the established legal timeframe.
Financial Background and Recent Results
Despite the tax adjustment, the company reported net profits of ₹2,694 crore in the second quarter, exceeding market projections (₹2,480 crore). This result included an extraordinary gain of ₹273 crore derived from the resolution of tax disputes between the UK and Indian authorities, underscoring the importance of efficient management of international tax matters for multinational groups.
In terms of revenue, HUL recorded ₹15,585 crore in individual turnover, a 0.5% year-on-year increase. At the same time, its EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) reached ₹3,563 crore, according to market expectations. Operating margins remained stable, ranging between 23% and 24%, despite a slight decline of 60 basis points from the previous year.
Transfer Pricing Implications
The HUL case highlights increasing tax oversight in India regarding related-party transactions, a trend that has been consolidating in recent years as part of the government’s strategy to enhance tax collection and prevent tax base erosion.
Indian tax authorities have increased their scrutiny of intra-group services, management fees, and intellectual property payments, which often trigger disputes due to the difficulty of proving profits received or compliance with the Arm’s Length Principle.
Thus, multinationals must enhance the traceability and economic foundation of their intercompany transactions through updated comparability studies, precise functional analyses, and documentation that validates the legitimacy of payments made.
Additionally, the rejection of depreciation deductions exemplifies how authorities are expanding their focus beyond Transfer Pricing to encompass aspects of asset valuation and application of accounting policy, which necessitates comprehensive tax management that combines accounting consistency, documentary support, and regulatory compliance across all jurisdictions.
Conclusion
Although HUL does not anticipate a significant impact from this order, the case highlights how tax authorities continue to tighten control over Transfer Pricing policies and other sensitive areas of tax compliance.
In a global environment where transparency and the correct valuation of related-party transactions are increasingly relevant, companies must strengthen their compliance, documentation, and tax defense policies to mitigate risks and ensure efficient tax management.
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Source: CNBCTV