Skip to main content

No Service Tax on Payments to Expats in Arms of MNCs

By
Salary, allowances covered under ruling in a plea filed by Indian subsidiary of US group
Payments to expats working in India for local arms of multinationals by the foreign parent won't attract service tax, the Authority for Advance Ruling has said. The decision is significant as it brings some relief to MNCs that have been served with notices in similar cases.
“There shall be no liability to pay service tax on the salary and the allowances payable by the applicant to the employee in terms of the dual employment agreement and such salary will not be eligible to levy the service tax as per the provisions of the Finance Act,“ the ruling said. This followed a plea by North American Coal Corp. India, the local subsidiary of US-based North American Coal Corp. It sought a ruling on the application of service tax on social security benefits given by the parent to an employee working in India on contract.
There have been recent instances of tax authorities issuing notices to MNCs in a number of cases where an expat employee received payments from the parent in his home country .
Their contention is that the practice of paying salaries for work in India that are then transferred to foreign accounts by the parent company and reimbursed to it by the Indian to it by the Indian subsidiary make it akin to supply of manpower and therefore taxable.
“Service tax authorities have been taking a view that where an employee of a group company is deputed to work in an associate company for a specified period assignment, the transaction amounts to creating a service provider-service recipient relation ship between the two companies,“ said Saloni Roy , senior director, Deloitte India.
Although rulings by the AAR are case specific, they have an effect on tax assessment of other firms under similar circumstances. AAR is a quasi-judicial body , set up to give opinions and guide companies on potential tax liabilities. “The Advance Ruling Authority is a good indication as to how this situation should be interpreted. It is hoped that the tax authorities rely on the ratio emerging from this ruling when they examine identical situations of other companies, albeit this ruling is not binding on them,“ said Anita Rastogi, partner, PwC.
Rulings Must Be Consistent Too
It makes sense for MNCs to get to know their tax liability in advance. So, the AAR ruling will lend certainty to the tax treatment of the transaction, and avert disputes. However, this ruling should set a precedent in similar cases. This means that a ruling on a transaction based on one set of principles must hold good for another transaction with the same set of principles. There must be consistency. The rulings must also be made binding on the government, just as the letter rulings in the US.
The Economic Times, New Delhi, 21st Dec. 2015

Comments

Post a Comment

Popular posts from this blog

Household debt up, but India still lags emerging-market economies: RBI

By
  Although household debt in India is rising, driven by increased borrowing from the financial sector, it remains lower than in other emerging-market economies (EMEs), the Reserve Bank of India (RBI) said in its Financial Stability Report. It added that non-housing retail loans, largely taken for consumption, accounted for 55 per cent of total household debt.As of December 2024, India’s household debt-to-gross domestic product ratio stood at 41.9 per cent. “...Non-housing retail loans, which are mostly used for consumption purposes, formed 54.9 per cent of total household debt as of March 2025 and 25.7 per cent of disposable income as of March 2024. Moreover, the share of these loans has been growing consistently over the years, and their growth has outpaced that of both housing loans and agriculture and business loans,” the RBI said in its report.Housing loans, by contrast, made up 29 per cent of household debt, and their growth has remained steady. However, disaggregated data sho...
Post a Comment
Read more

External spillovers likely to hit India's financial system: RBI report

By
  While India’s growth remains insulated from global headwinds mainly due to buoyant domestic demand, the domestic financial system could, however, be impacted by external spillovers, the Reserve Bank of India (RBI) said in its half yearly Financial Stability Report published on Monday.Furthermore, the rising global trade disputes and intensifying geopolitical hostilities could negatively impact the domestic growth outlook and reduce the demand for bank credit, which has decelerated sharply. “Moreover, it could also lead to increased risk aversion among investors and further corrections in domestic equity markets, which despite the recent correction, remain at the high end of their historical range,” the report said.It noted that there is some build-up of stress, primarily in financial markets, on account of global spillovers, which is reflected in the marginal rise in the financial system stress indicator, an indicator of the stress level in the financial system, compared to its p...
Post a Comment
Read more

Retail inflation cools to a six-year low of 2.82% in May on moderating food prices

By
  New Delhi: Retail inflation in India cooled to its lowest level in over six years in May, helped by a sharp moderation in food prices, according to provisional government data released Thursday.Consumer Price Index (CPI)-based inflation eased to 2.82% year-on-year, down from 3.16% in April and 4.8% in May last year, data from the Ministry of Statistics and Programme Implementation (MoSPI) showed. This marks the fourth consecutive month of sub-4% inflation, the longest such streak in at least five years.The data comes just days after the Reserve Bank of India’s (RBI) Monetary Policy Committee cut the repo rate by 50 basis points to 5.5%, its third straight cut and a cumulative reduction of 100 basis points since the easing cycle began in February. The move signals a possible pivot from inflation control to supporting growth.Food inflation came in at just 0.99% in May, down from 1.78% in April and a sharp decline from 8.69% a year ago.A Mint poll of 15 economists had projected CPI ...
Post a Comment
Read more