NEW DELHI: In a recent development, the Central Board of Indirect Taxes and Customs (CBIC) has issued a circular offering respite to multinational corporations (MNCs) with Indian subsidiaries that employ expatriates.
In a major relief, the circular, issued by CBIC acknowledged that the non-payment of goods and services tax (GST) on expat salaries is a matter of interpretation. It said the tax authorities should exercise caution before issuing tax evasion notices to Indian subsidiaries of MNCs regarding expatriate manpower deputed from abroad.
CBIC recognises that different companies have various salary arrangements for expats, necessitating a case-by-case consideration of the associated tax implications. The circular references the Supreme Court ruling in Northern Operating System (NOS) case, advising officers to examine factual aspects before applying the judgment universally. It emphasises that the decision in the NOS case should not be mechanically applied to all instances.
In 2022, the court had 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. The court noted that, in the NOS case, Indian subsidiary reimbursed the foreign principal for expatriate employees’ salary expenses. This ruling is deemed applicable to GST as well.
Based on this judgment, the Directorate General of GST Intelligence (DGGI) had initiated investigations in multiple cases, involving GST amounts exceeding `3,000 crore across India. Notices were sent to companies such as BMW India, Mitsubishi Electric India, Metal One Corporation, Alstom Transport India and United Breweries, seeking 18% GST on expat salaries, among others.
As per Abhishek Jain, Partner and National Head, Indirect Tax, KPMG in India, such proactive, timely and much needed directions have played a significant role in successful implementation of GST. Where the said instructions are followed at ground level, these could help closure of various show-cause notices issued on the matter.