New Delhi: The IT BPO industry said the clarification issued by the GST Council on corporate intermediary status will address litigation and unlock significant industry refunds that have been withheld due to confusion over exports viewed as intermediary services.
“The established principles will guide tax treatment in all sectors,” said Nasscom. The industry has also welcomed clarification on the GST export status of subsidiaries in the group. “This will ensure that the Global Capability Centers (or captives) are no longer exposed to the risk of GST when exporting to parent or group companies around the world,” the IT industry body said on Twitter on Tuesday.
The government has made it clear that services that are outsourced to India or provided in the country for foreign companies are not treated as intermediary services and therefore do not have to pay 18% goods and services tax (GST), which is a great relief for those of the 180- Billion dollar technology sector in the country.
The clarification approved by the GST Council on Friday will unleash hundreds of millions in tax refunds to companies in the information technology (IT), IT-based services (ITeS), financial services, and research and development sectors as a solution to the four-year-old problem that was too large-scale Has led to litigation.
The tax authorities had started treating back office service providers or business process outsourcing (BPO) companies as intermediaries and denying their services export status to foreign companies. Exports are taxed at zero under GST and are not subject to the tax, while middlemen pay an 18% fee.
More than 200 companies are involved in disputes over the definition of “intermediary” services. The circular provides five prerequisites for defining which service counts as an intermediary service.
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The CBIC had clarified in December 2018 that “if the Indian Branch is incorporated as a wholly-owned Indian subsidiary incorporated under Indian law, the foreign company and Indian subsidiary would not be subject to the regulations of a separate or affiliated person”. since both are separate legal entities “.
Despite this, the local disputes continued and there has been a trend towards increased litigation on this issue in recent months. The biggest impact of this was a potential 18% demand on the entire topline of companies, Nasscom said in a post. “We have seen that this interpretation has been adopted by several large IT / tech companies. The clarification will ensure the availability of export status for services that Indian IT companies provide for their overseas group companies. This will also help resolve reimbursement issues and resolve legal disputes that are pending before the appellate body and judicial authorities, ”she added.
The circular states that an intermediary is a company that mediates or facilitates the delivery of goods or services or securities between two or more parties. Therefore, at least three parties must be involved in a brokerage agreement. The brokerage agreement must also include two different services, one between the two clients and an ancillary service provided by the broker. A placement service provider must have the character of an agent, broker or similar. In addition, anyone who supplies goods or services or both or securities on their own account is not an intermediary. Even subcontracting a service would not fall into the category of brokerage.
Taken together, these terms mean that back office services are considered exports and not intermediary services.
“An intermediary essentially mediates or mediates another service (the ‘main service’) between two or more other people and does not provide the main service itself,” says the circular. “The role of the mediator is only supportive.”