MNCs sent tax notices over expat employees' allowances from foreign parent companies

livemint.com:

₹1 crore to ₹150 crore, cover the period between FY18 and FY22 for payments by foreign parent companies to expats working in Indian subsidiaries of MNCs, sources told the paper. Also Read: Dabur gets GST demand notice of ₹320.6 crore The issue surfaced during audits of local arms of MNCs in various sectors, including smartphones, automobiles, software, FMCG, consumer durables, and cosmetics. Although tax demands for transactions made in FY18 were time-barred as of September 30, demands for subsequent years (FY19, FY20, FY21, and FY22) are being served.

Companies have been given a 30-day window to respond to these tax demands. GST authorities consider expat salaries or allowances, reimbursed by Indian companies to foreign entities, as a "supply of manpower," making them taxable under the GST regime, the report states. This practice has been followed to maintain expats' social security benefits in their home country.

Also Read: Income Tax notice: 6 high-value cash transactions that can get you flagged by I-T dept However, salaries directly paid by Indian companies to expat employees without reimbursement won't attract GST, as expats are then perceived as employees of the Indian company alone, it added. The recent surge in tax demands follows a Supreme Court judgment in May 2022 in the Northern Operating System (NOS) case. The ruling stated that the secondment (deputation) of employees from a foreign group to an Indian entity constitutes "manpower supply service" and is liable for service tax under the reverse charge mechanism.