MNC arms to pay GST as per transaction value quoted by parents
By: Admin
June 29, 2024
Categories: GST Recent News
4 Min Read
The Central Board of Indirect Taxes and Customs (CBIC) on Thursday clarified that if an MNC subsidiary in India as service recipient is eligible to claim full input tax credit (ITC) under the GST, the value declared by the overseas affiliate in the invoice will be treated as the taxable value.
But in cases, where the foreign affiliate does not raise an invoice, it would be presumed that the value of services is nil and no GST is required to be paid.
Companies had earlier raised concerns about tax demands arising from the reverse charge mechanism (RCM) for such services, where no consideration was made. “The clarification will help in avoiding misinterpretation and litigation on this issue by the GST authorities,” an expert said.
The clarification was issued after receiving representations from trade and industry bodies, who told the CBIC that demands are being raised by some of the field formations against the registered persons seeking tax in respect of certain activities undertaken by their related persons based outside India, by considering the said activities as import of services by the registered person in India, based on an “expansive interpretation” of CGST provisions, even though no consideration is involved in the said activities and the same are not considered as supplies by the said related person in India.
Thus, the clarification brings consistency in GST application across different regions and ensures a fairer approach for related-party imports with full ITC claims, another expert said.
An tax expert said that this clarification will help the trade to a “great extent”, especially in the case of companies who have their head-office outside India and such types of transactions are “quite common”.
Meanwhile, for a separate issue related to levy of GST on reimbursement of employees of an Indian subsidiary by a foreign entity, the CBIC has clarified in cases where for the purpose of reimbursement, domestic employees are allotted shares/ securities of holding companies, no tax will be levied.
The circular says that reimbursements on a cost-to-cost basis do not trigger GST, affirming that such transactions do not constitute a taxable service. However, it introduces a critical caveat: GST applies to any “additional amount” or markup included in reimbursements.
“This development underscores the importance of meticulously structuring ESOP transactions for both compliance and optimal tax planning,” he said.
Another tax expert said that these clarifications demonstrate that government is willing to listen and address various industry concerns. “One can hope that other set of clarifications would be issued after the next Council meeting in August.”
Source from: https://www.financialexpress.com/business/industry-mnc-arms-to-pay-gst-as-per-transaction-value-quoted-by-parents-3537077/
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