[India] CBIC urges restraint in issuing expat salary GST notices

India’s Central Board of Indirect Taxes and Customs (CBIC) has issued a circular offering respite to multinational corporations (MNCs) whose Indian subsidiaries employ expatriates, The New Indian Express reports.

The CBIC circular states that the non-payment of goods and services tax (GST) on expat salaries is a matter of interpretation. Tax authorities should exercise caution before issuing tax evasion notices to Indian subsidiaries of MNCs regarding expatriate manpower deputed from abroad, according to the Board.

CBIC reportedly recognises that different companies have various salary arrangements for expats, this necessitates a case-by-case consideration of the associated tax implications. The circular references a Supreme Court ruling in the Northern Operating System (NOS) case, advising officers to examine facts before applying the judgment universally. It emphasises that the decision in the NOS  case should not be universally applied.

In 2022, the court determined that the secondment of employees from foreign principal companies to Indian subsidiaries falls under the category of “manpower supply” in the erstwhile service tax provisions. It noted that, in the NOS case, the Indian subsidiary reimbursed the foreign principal for expatriate employees’ salary expenses. This ruling is deemed applicable to GST as well.

The Directorate General of GST Intelligence (DGGI) reportedly initiated investigations in multiple cases, involving GST amounts exceeding `3,000 crore across India, based on this judgment. Notices were sent to companies including BMW India, Mitsubishi Electric India, Metal One Corporation, Alstom Transport India and United Breweries, seeking 18 per cent GST on expat salaries.

Abhishek Jain - Partner and National Head of Indirect Tax for KPMG in India - told The New Indian Express that such proactive and timely directions have played a significant role in the successful implementation of GST. Where these instructions are followed at ground level they could help close show-cause notices issued on the matter, he said.

Source: The New Indian Express

India’s Central Board of Indirect Taxes and Customs (CBIC) has issued a circular offering respite to multinational corporations (MNCs) whose Indian subsidiaries employ expatriates, The New Indian Express reports.

The CBIC circular states that the non-payment of goods and services tax (GST) on expat salaries is a matter of interpretation. Tax authorities should exercise caution before issuing tax evasion notices to Indian subsidiaries of MNCs regarding expatriate manpower deputed from abroad, according to the Board.

CBIC reportedly recognises that different companies have various salary arrangements for expats, this necessitates a case-by-case consideration of the associated tax implications. The circular references a Supreme Court ruling in the Northern Operating System (NOS) case, advising officers to examine facts before applying the judgment universally. It emphasises that the decision in the NOS  case should not be universally applied.

In 2022, the court determined that the secondment of employees from foreign principal companies to Indian subsidiaries falls under the category of “manpower supply” in the erstwhile service tax provisions. It noted that, in the NOS case, the Indian subsidiary reimbursed the foreign principal for expatriate employees’ salary expenses. This ruling is deemed applicable to GST as well.

The Directorate General of GST Intelligence (DGGI) reportedly initiated investigations in multiple cases, involving GST amounts exceeding `3,000 crore across India, based on this judgment. Notices were sent to companies including BMW India, Mitsubishi Electric India, Metal One Corporation, Alstom Transport India and United Breweries, seeking 18 per cent GST on expat salaries.

Abhishek Jain - Partner and National Head of Indirect Tax for KPMG in India - told The New Indian Express that such proactive and timely directions have played a significant role in the successful implementation of GST. Where these instructions are followed at ground level they could help close show-cause notices issued on the matter, he said.

Source: The New Indian Express