Services provided by the arm of a foreign entity to the parent company to be considered exports

A subsidiary, sister company, or group enterprise of a multinational enterprise in India will find it easy to claim the refund of GST paid here, as the Central Council of Indirect Taxes and Customs (CBIC) has issued a detailed circular clarifying the requirements. provisions relating to the export of services.

CBIC has stated that a company incorporated in India and a legal person incorporated by or under the laws of a country outside of India, also referred to as a foreign company under the Companies Act, are separate persons. under the CGST law and are therefore separate legal entities.

He added that these two separate persons would not be considered “mere establishments of a separate person in accordance with Explanation 1 of Article 8 (of the GST Act)”.

This clarification was necessary because there was an ambiguity in the interpretation of the provisions of the law by different tax agents, which led to denial of refunds to exporters who exported services to their parent company or subsidiary abroad.

Clarification welcomed

Experts believe that this, along with the circular on intermediaries, will bring a lot of clarity, especially for IT departments and help India to attract more foreign companies to set up a subsidiary here, also creating more opportunities for business. ‘use.

The two circulars follow a decision of the GST Council on September 17.

Harpreet Singh, Partner, Indirect Taxes at KPMG India, believes this is one of the best outcomes of the recent GST Council meeting as many refunds for service exporters were denied / withheld due to allegations of provision of services by a subsidiary in India, to its foreign company outside India, not export qualifying. “I hope that with the clarification, the authorities will no longer challenge the export of services in this area and this should lead to quick reimbursements and better working capital for service exporters,” he said.

According to Aditya Singhania, Founder of Singhania’s GST Consultancy & Co, Circulars 159 on Intermediate Service and 161 on Clarity of Treatment of Distinct Persons largely address the concerns of the exporting community and will serve as an impetus for their refunds to be made. sanctioned. The claims are pending before the adjudication / appeal authorities.

The CBIC also issued a circular specifying that the service of a back office to its foreign entity will not be treated as an intermediary service, and therefore will not attract the GST at 18%.

Intermediate services

The circular listed the main requirements for intermediary services. These include at least three parties, two separate supplies, an intermediary service provider having the character of agent, broker or any other similar person, does not include a person who supplies these goods or services or both or securities for its own account, sub- contracting for a service is not an intermediary service.

The GST law defines an intermediary as a broker, agent or other person, regardless of name, who arranges or facilitates the provision of goods or services or both, or securities, between two or more persons. , but does not include a person who provides these goods or services or both or securities on their own behalf. However, due to the interpretation of this definition, there have been disputes.

About the author