Services provided by employees of a company’s branch office to its head office and vice versa located in different states would be liable to 18 per cent GST, the AAR has said. Profisolutions Pvt Ltd, which has its registered office in Karnataka and a branch office in Chennai in Tamil Nadu, had approach the Authority for Advance Ruling (AAR) seeking a ruling on whether the services provided to head office will attract GST.
The branch office of the applicant is providing support services like engineering, design and accounting to its head office at Bangalore in Karnataka. The applicant contends that employees are appointed and working for the company as a whole and not employed for head office or branch office specifically.
Under Goods and Services Tax (GST), businesses need to obtain registration in every state in which they have a physical presence. The AAR observed that under GST law supply of services between two registrations of the same person in same state or in different states attract tax.
Services, including services of common employees of a person, provided by branch office to head office and vice versa, each having separate GST registration, will attract GST liability,” the AAR said. AMRG & Associates Senior Partner Rajat Mohan said this AAR ruling upheld the levy of 18 per cent tax for such flow of services between two GST-registered entities under the same PAN.
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However, there is no guidance on the methodology of computing and valuing the same without increasing tax risk on the business,” he said. KPMG in India Partner and National Head, Indirect Tax, Abhishek Jain said this ruling could open another Pandora’s box on the existing debate of there being a supply of service from the head office to its branch offices and related valuation.
“The ruling upholds identification of common human resources and there being a provision of intra entity services accordingly by these common resources. Such identification itself would be a challenge for companies and could open a new series of litigation on services from branch offices to head office as well,” Jain added. Mohan said cross-charging of salary under GST is a complex topic that requires careful consideration and compliance with the relevant regulations.
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“The cross-charging of salary can have massive tax implications for tax-exempt sectors like healthcare, education, agriculture, financial services and charitable activities,” Mohan added.
