Revolutionary Raja Ram for Tax & Economic Reforms

@abhishekrajaram

over 1 year ago

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Indian units of foreign companies face GST queries on ESOPs

➡️ GST authorities are raising inquiries in cases where shares of a foreign parent or holding company are being allotted to an Indian subsidiary's staff under schemes like employee stock option plan (ESOP) and employee share purchase plan (ESPP).

➡️ The stand adopted by GST authorities is that the overseas entity, whose shares are allotted to the employees of the subsidiary company, is not the employer.

➡️ The obligation of providing shares under the employment contract rests with the Indian subsidiary, but in turn is fulfilled by the overseas entity. ➡️ Thus, it is an import of service by the Indian entity/subsidiary, which is subject to 18% GST.

➡️ The GST authorities in India are of the view that the allotment of shares by a foreign parent or holding company to the employees of its Indian subsidiary is an import of service by the Indian subsidiary.

➡️ This is because the obligation to provide shares to the employees rests with the Indian subsidiary, but the actual provision of shares is done by the foreign parent or holding company.

➡️ The GST authorities have cited the following reasons for their view: 🔺The overseas entity is not the employer of the employees of the Indian subsidiary. 🔺The Indian subsidiary is not making any payment to the overseas entity for the provision of shares.

🔺The overseas entity is providing a service to the Indian subsidiary by fulfilling its obligation to provide shares to the employees.

➡️ It is still not clear how the GST authorities will enforce the 18% GST on ESOPs. It is possible that the GST authorities will issue circulars or notifications clarifying their position on this issue.

➡️ It is also possible that the GST authorities will take legal action against companies that do not comply with the 18% GST on ESOPs.

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