STOTLAND | GLOBAL TP MONITOR. A weekly Review of Global Transfer Pricing Developments

Issue No. 05 | October 16, 2026

Two developments this week challenge a familiar temptation in transfer pricing: replacing economic analysis with mechanical calculations. In India, Citibank considers when financial transactions belong together and why derivative profits cannot simply be divided by arbitrary percentages. In Europe, Romagnetics asks whether a mandatory median adjustment is compatible with EU law.

Different jurisdictions, different procedural stages—but the same underlying question: when does a convenient formula cease to be a reliable measure of an arm’s-length result?

I. Case Law

1. India — Citibank N.A. v. Revenue

 Jurisdiction: India

Court: Income Tax Appellate Tribunal (ITAT), Mumbai

Case: ITA Nos. 4970 & 4981/Mum/2007, AY 2002–03

Order date: 8 October 2026

Topic: Banking PE | Aggregation | Derivatives | Profit split | Intra-group services

Background

The dispute arose from dealings between Citibank’s Indian branch and overseas group operations, including short-term foreign-currency placements, venture capital advisory services, derivative transactions, correspondent banking and supervisory activities. The tax authorities proposed a series of adjustments based on separate benchmarking and attributed remuneration.

Tribunal Decision

On foreign-currency placements, the Tribunal accepted that closely linked transactions may be assessed on an aggregated basis. Excess interest earned on some placements could offset shortfalls on others, subject to verification. Section 92(3) did not justify considering only the unfavorable transactions while disregarding corresponding excess recoveries.

For venture capital advisory services, the Tribunal accepted a 2.5% portfolio-based fee for the relevant arrangements. Separately, it rejected an adjustment to data-centre support services where the taxpayer’s 10% mark-up exceeded the margin of a relevant comparable.

The derivatives issue was particularly instructive. The TPO had attributed 60% of day-one value to the Indian branch; the appellate authority reduced this to 20%. The Tribunal rejected the adjustment because Rule 10B(1)(d) requires identification of combined net profits and an analysis of the parties’ relative contributions. Neither percentage had been supported by that exercise.

The Tribunal also rejected automatic charges for correspondent banking and incidental overseas supervision without evidence of distinct, independently remunerable services. The decision addressed other income-tax matters as well; the cross-appeals were not a complete victory for either side.

Why It Matters

Aggregation is not an invitation to net unrelated transactions. It requires a defensible economic link. Equally, invoking the Profit Split Method does not turn a negotiated or administratively convenient percentage into an arm’s-length allocation. The relevant profit pool, functions, assets and risks still have to be established.

Practitioner’s note:

A 60/40 split may look tidy in a spreadsheet. Unfortunately, Rule 10B does not recognize neatness as a transfer pricing method.

2. European Union / Romania — Romagnetics SRL (C-725/26)

Jurisdiction: European Union / Romania

Court: Court of Justice of the European Union (CJEU)

Reference lodged: 2 July 2026 | Official Journal notice: 12 October 2026

Status: Preliminary reference pending — no judgment

Topic: Arm’s-length range | Mandatory median adjustment | Free movement of capital

Background

The Romanian proceedings concern a transfer pricing adjustment involving Romagnetics and a related Belgian entity. The taxpayer contests the application of a domestic requirement to adjust to the median of a benchmarking range, invoking the OECD Transfer Pricing Guidelines’ recognition that, where a range is sufficiently reliable, more than one point may satisfy the arm’s-length principle.

Question Before the Court

The referring court asks whether Articles 26(2) and 63 TFEU preclude national rules requiring an adjustment specifically to the median of an arm’s-length range. This is a question referred for interpretation, not a finding by the CJEU that the Romanian rule is unlawful.

Why It Matters

The distinction between an arm’s-length range and a mandatory point adjustment is consequential. Statistical measures can improve reliability when comparability is imperfect, but a requirement to use the median in every case raises a different question: whether domestic law can disregard other potentially reliable outcomes within the range.

The eventual judgment may be relevant to other EU regimes using central-tendency adjustments. Its reach will depend on the Court’s reasoning and the precise national legal framework; it would be premature to assume that every median-based adjustment is vulnerable.

Practitioner’s note:

The median is a useful statistical tool. Whether it must also be the only legally permissible answer is now a question for Luxembourg as the issue is now before the European Court.

Overall Takeaway

Citibank and Romagnetics approach the arm’s-length principle from opposite ends. The former addresses the delineation and allocation of integrated transactions; the latter questions whether the endpoint of a benchmarking analysis may be fixed mechanically by law.

The common lesson is that methodology should serve the economics—not replace them. Before splitting a profit pool, segmenting a transaction or adjusting to the middle of a range, establish why that treatment is supported by the facts and the available evidence.

Sources: Citibank N.A., ITA Nos. 4970 & 4981/Mum/2007, order dated 8 October 2026 (Indian Kanoon); CJEU, Case C-725/26, Romagnetics, preliminary-reference notice published 12 October 2026 (CURIA).