Skip to main content

Cos Remitting Pay Overseas to Parent may Face FEMA Heat

By
Service tax authorities refer matter to RBI, enforcement directorate
Multinationals that have challenged service tax levies on salaries paid overseas to expats employed in India may be faced with a more fearsome challenge -scrutiny under the Foreign Exchange Management Act (FEMA), which deals with forex violations. Remitting the salary of anyone employed in India by an entity in the country in foreign currency is not permitted under FEMA, said an official. Service tax authorities have already referred the matter to the Reserve Bank of India and the Enforcement Directorate (ED), the person said.
Tax authorities contend that companies may have not declared payments as salaries to their employees in the country while seeking permission from RBI before making fund transfers. “Authorities need to ascertain how these transfers are being made,“ said the official cited above.
Typically, companies that employ expats pay a part of the salary in India while the rest is paid by the overseas parent. This money is then reimbursed by the Indian arm to the parent.
Tax authorities, after closely scrutinising payments made to foreign parent companies, had argued that they were liable to service tax on this as these were in the category of `manpower supply services'. A taxable service was being rendered by a foreign company to an Indian company. Service tax was levied on the payment made to the foreign parent by the Indian arm, since it was regarded as import of service under the reverse charge mechanism.
Show-cause notices were issued to a number of companies by the audit wing of the service tax department. The companies contested this, arguing that these were payments to their own employees for work in India. This argument of theirs has raised red flags.
Tax experts said the matter needs to be explained as India is keen to attract foreign capital and needs expertise in many sectors.
“We need clarity in law as secondment of employees is a popular practice among MNCs,“ said Bipin Sapra, partner at EY. He said some judicial pronouncements had in fact given relief to companies on levy of service tax.
With a number of foreign investors setting up base in the country, India has become an attractive destination for expat postings. A 2014 HSBC survey said sectors such as telecommunications, information technology and Internet accounted for 21% of total expats, followed by construction and engineering at 19%.
The Economic Times New Delhi,21st April 2016

Comments

Post a Comment

Popular posts from this blog

Govt’s gamble on GST cuts: What do the bond and currency markets signal?

By
  It’s not just humans who suffer from cognitive biases; markets do too. Interestingly, different financial markets exhibit distinct biases, each interpreting events through its own prism of prejudice. Take the recent announcements on GST reforms: equity markets have chosen to view them through the lens of growth, while bond and currency markets are focusing on potential macroeconomic risks—fiscal pressures and current account challenges. So, which lens captures the true pulse?Equity markets may be right in expecting GST reforms to revive consumption, which has remained lacklustre for a while. But the key question remains—will this revival come at the cost of broader macro stability?It is well known that consumption stocks have rallied since the GST rationalisation announcement. But what about bond markets? What signals are they sending since this rejig was announced from the ramparts of the Red Fort?The signs aren't encouraging. Bond prices have slumped and yields have surged sinc...
Post a Comment
Read more

Luxury carmakers urge clarity on GST rates to boost festive season sales

By
  A clear picture regarding new GST rates at the earliest will help the overall auto industry, including the luxury car segment, to regain momentum in the ongoing quarter, which generally sees enhanced sales on account of the festive season.The high-powered GST Council, chaired by Finance Minister Nirmala Sitharaman, will meet on September 3-4 to discuss moving to a two-slab taxation.In an interaction with PTI, BMW Group India President and CEO Hardeep Singh Brar said the recent speculation about the change in GST rates has caused uncertainty in the minds of consumers.Consumer interest and demand is strong, but they (prospective buyers) have adopted a wait-and-watch approach, and this delayed decision-making is impacting new vehicle sales at a certain level, he noted."Expediting clarity on GST rates is essential to get back to speed and ensure the auto sector's contribution to economic growth during this quarter is robust," Brar stated.He also hoped that the sustainable p...
Post a Comment
Read more

Sebi proposes tighter norms for green bond third-party reviewers

By
  Sebi on Friday said it has proposed to tighten the norms to appoint independent third-party reviewers or certifiers for green debt securities to align them with requirements for other ESG-linked bonds.In a draft circular, Sebi said that the current norms for green bonds, introduced in February 2023, lack detailed requirements around reviewer independence, conflict of interest mitigation, and disclosure standards that are now in place for other ESG-linked securities under a June 2025 circular.The regulator's latest proposal seeks public comments on a revised framework that would bring parity by incorporating comprehensive criteria for third-party certifiers of green bonds on non-convertible securities.Under the proposed norms, issuers of green debt securities will need to appoint reviewers who are independent of their management, directors, and key managerial personnel. These reviewers will be remunerated in a way that prevents any conflicts of interest and possess relevant expert...
Post a Comment
Read more