Skip to main content

Dealers of Imported Sports Goods Under Taxman’s Lens

Dealers of Imported Sports Goods Under Taxman’s Lens
DRI probes whether marketing spends like sponsoring events and roping in brand ambassadors be added to total import cost
Does getting a sport star to endorse a brand or sponsoring a sports event be treated as imports?
The intelligence arm of the tax department seems to think so. They content many dealers of imported sports goods and equipment unvalued their imports and sign contracts that obligates them to plough a sizeable amount of the value into endorsements and sponsorship deals.
Revenue sleuths are investigating whether Indian dealers who import golf kits, table tennis rackets, badminton rackets and shuttlecocks must treat any marketing spend like sponsoring events and roping in brand ambassadors as imports.Directorate of Revenue Intelligence (DRI) has initiated investigations against dealers of imported golf kits, badminton and table tennis goods of brands like Callaway, Ping, Yonex, Donex, Li Ning and Tietlist. In some cases, notices have been issued and dealers — who typically have territories assigned to them within India — have been asked to cough up additional taxes.
In most cases this would lead to about 28% hit on all the marketing spend of the dealers.
Dealers, who tend to sponsor events and players in their respective regions, claim the demand doesn’t have merit as they don’t have any connection to the multinationals and such valuation scrutiny can only take place between related parties.
“When a dealer imports goods from a sports manufacturer based outside India, it is possible that the transactions are not between related parties and so there is no need for scrutinising the valuation. Moreover, promotional expense incurred by the dealer, either through sponsorship of sport personalities or events, cannot be construed as the import cost for levying customs duty,” said Abhishek A Rastogi, partner, Khaitan & Co The taxman is claiming that many multinationals are undervaluing imports and marketing spend is nothing but a mandatory requirement embedded in the cost to hoodwink Indian authorities.
Tax experts said whether this argument of the taxman stands would depend on documentation or contracts between Indian dealers and the multinational.The key is whether payments under investigation would qualify as ‘condition of sale’ as part of the contractual obligation of the seller: to such extent the essence of agreement or documentation would be crucial. This would typically be a fact based issue,” said Suresh Nair, Partner, EY India.
Tax experts say that not just contracts but even an email communication between Indian dealers and multinational could be a cause of worry.“The investigators would look at all documentation including emails and if there is a demand and or communication from the multinational about the marketing spend, that could be considered condition for sale. To levy these taxes DRI has to prove that there the marketing spend was one of the conditions for the import of goods,” said Sachin Menon, national head of indirect tax, KPMG.
For instance, suppose Saina Nehwal endorses a Japanese badminton brand, or an Indian dealer of an American golf kit manufacturer sponsors a Noida amateur golf tournament—DRI is demanding that the cost must be added to cost of imports and taxed.In most cases, the sponsorship costs or paying a brand ambassador are incurred by a local dealer. If a dealer imports goods worth Rs 1,000, and spends ?100 on sponsoring a sports star, should he be subjected to customs duty on Rs 1,000?
Tax officials are claiming that the actual cost of import is actually Rs1,100 as Rs100 spent on sponsorships was a prerequisite for the import.
Tax experts point out that the marketing or promotional spend can be subjected to taxes only in situations when the contract between the Indian dealer and the multinational specifies this as a condition of sale. “The promotional expenses can be added to the import cost only when these costs are condition of sale. In most of these transactions, the responsibility of incurring the promotional cost is on the importer and hence the condition of sale is not kicked,” added Rastogi.
The Economic Times, New Delhi, 13th June 2018


Popular posts from this blog

SC order on RBI circular: More options for banks to tackle defaulting firms

Lenders also have the option of restructuring the loans Lenders to companies which are under stress could now have three options to deal with them if they default on loans: take a haircut as part of a one-time settlement, restructure the loans for a longer tenure as they did when corporate debt restructuring schemes were allowed, or go to the Insolvency and Bankruptcy Code (IBC) for redress. These changes in the options available to lenders come, according to PE funds and bank lawyers who are involved in the IBC process, in the wake of the Supreme Court on Tuesday setting aside the 12 February RBI circular, which allowed a 180-day window to banks to resolve a company default.But they can still find a resolution. According to a Reserve Bank of India circular, a loan becomes a non-performing asset when banks cannot find a way of recovering their money in 90 days. In short, banks still have a window to resolve the default. Lenders can take a haircut as part of a one -time settlement of du…

April GST collections at new high despite rate rationalisation in December

Goods and services tax (GST) collection touched a record high in April, exceeding Rs 1 trillion for the third time in four months. The mop-up was 10 per cent higher over the previous year. Gross collection for the month was Rs 1.13 trillion, said the finance ministry. Despite the recent rate rationalisation in December, a rise in collection was reported. Of the total collected, the CGST (central GST) contributed Rs 21,163 crore, the SGST (state GST) Rs 28,801 crore, the IGST (integrated GST) Rs 54,733 crore (including Rs 23,289 crore on import) and cess Rs 9,168 crore (including Rs 1,053 crore on import). After settlement of the IGST and the balance IGST in a 50:50 ratio between the Centre and states on a provisional basis, the CGST stood at Rs 47,533 crore and SGST at Rs 50,776 crore. The CGST target in the Union Budget for 2019-20 is Rs 6.1 trillion. “The April collection indicates the tax base is increasing gradually, with GST getting stabilised with measures such as e-way bills and…

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…