Back offices now face 18% GST for services to multinational companies

New Delhi: Many back offices of multinationals in India will have to fork out 18 per cent and Goods and Services Tax (GST) on their services, the Economic Times reported on Monday mentioning a recent ruling of the Authority of Advance Ruling (AAR). The AAR has said that back office support services qualify as “intermediary” services and not exports.

Besides, Indian firms providing offshore support services to multinational companies will also face 18 per cent GST levy on their revenues. It may be noted that several of these firms were treated as exporters of services and thus, taxes were not applied in most situations. The AARs are quasi-judicial body that taxpayers may approach to seek guidance regarding the correct interpretation of GST provisions.

Abhishek Jain, Tax Partner, EY India, told ET: “This ruling could open the Pandora’s box for various India setups that are assisting foreign companies with back-office support functions such as accounting and legal. As these services do not qualify as exports, 18 per cent costs on these services could make them non-competitive.”

Many experts believe the verdict could also impact the service tax regime and that tax demands could also be made retrospectively, the report highlighted. According to the AAR decision, services provided by intermediaries should not be treated as ‘zero rated supplies.’

Tax experts feel the judgment has wide ramifications for businesses. They are of the opinion that the ruling would lead to litigation as tax sleuths may go after many companies that export services, the report said. Also, the verdict is likely to go against the GST law.

The implications would largely be on Indian firms that provide services to foreign companies, which in turn sell services to another company. “The ruling could lead to disputes in cases where three parties are involved, like vendor payments, follow up for receivables etc. In all such cases, there could be a potential tax demand of 18 per cent from the Indian entity,” Pratik Jain, National Leader, Indirect Tax, PwC India.

Meanwhile, the Indian IT industry revenue, including exports, is likely set to touch USD 167 billion for fiscal 2018-19, said its apex body Nasscom had said in October.


Related Posts