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

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

Many back offices of multinationals in India will have to fork out 18 percent 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 percent 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 AAR is a quasi-judicial body that taxpayers may approach to seek guidance regarding the correct interpretation of GST provisions.

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.’ Besides, as these services do not qualify as exports, 18 per cent costs on these services could make them non-competitive.

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 percent from the Indian entity.

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.



Source: ET Now News


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