Unlocking the Impact of GST on Foreign Holding Company Transactions
Recently, at the 53rd GST council meeting, a significant recommendation was made which has now been solidified with the release of a series of circulars by the Central Board of Indirect Taxes and Customs (CBIC) on June 26.
The circulars shed light on a crucial aspect concerning foreign holding companies and their interactions with domestic subsidiary companies. It has been clarified that if a foreign holding company charges additional fees, markup, or commission from a domestic subsidiary company for issuing Employee Stock Options (ESOPs), shares under the Employee Stock Purchase Plans (ESPPs), or Restricted Stock Unit schemes (RSUs) to the employees of the domestic subsidiary, then GST will be applicable.
This transaction will be treated as consideration for the supply of services related to facilitating/arranging the transaction in securities/shares by the foreign holding company to the domestic subsidiary. Consequently, GST will be levied on the amount of the additional fee, markup, or commission charged by the foreign holding company. The domestic holding company will be liable to pay GST on a reverse charge basis for such import of services from the foreign holding company.
However, in cases where the domestic subsidiary company reimburses the cost of securities/shares to the foreign holding company on a cost-to-cost basis, no GST obligation will arise.
Experts advise that Multinational Corporations (MNCs) must ensure clear and precise documentation of agreements with their parent and affiliate companies to avoid any potential GST implications.
Stay tuned for more updates on the evolving landscape of GST regulations and their impact on international transactions.
