Tax notices to MNCs over salaries paid to expat employees

NEW DELHI: The GST department has cracked down on several multinational companies (MNCs), and made them pay up heavy taxes on salaries paid to expat employees.

Sources told this newspaper that the department has made Maruti Suzuki pay up Rs 100 crore and HUL Rs 144 crore on account of salaries paid to employees from overseas parent companies. Honda Motors is also one of the entities, which have been made to pay up taxes. However, this newspaper could not ascertain the amount paid by Honda.

As per sources, the industry has been calling for immediate government clarification and relaxation in light of this development. CII and SIAM have made a representation in this regard to the government.

The tax issue cropped up after a Supreme Court verdict in May 2022 held that salaries paid by Indian entities for the expats who are seconded by the foreign parent company to the Indian entity are liable to service tax under reverse charge basis as the payment will be considered as ‘manpower supply’ services provided by the foreign parent company to the Indian entity. After the verdict, the GST department has shot tax notices to several MNCs making tax demands.

Secondment of employee is an arrangement where an employee of an organization is assigned to either a different department/unit within the organisation or a different business (usually a client).

This newspaper contacted Maruti Suzuki, HUL and Honda for their response. While the Maruti Suzuki spokesperson did not confirm the amount of tax they had to pay, she said that SIAM has been in talks with the government on behalf of the auto industry. HUL spokesperson didn’t respond to either email or text message sent by this newspaper. Honda sought more time to respond.

In a representation made by CII on behalf of the industry, it has pleaded that seconded employees become formal employees of Indian entities by way of issuance of formal appointment letters.

Their salaries are subject to TDS provisions under Section 192 of the Income Tax Act and PF provisions in similar ways as are applicable to any Indian employee engaged by the same company. 

The CII has argued that these expats are also issued Form 16 for the TDS deducted on salaries, and that the Income Tax authorities were also allowing remittance to foreign companies for the salaries of expats employed by Indian entities without any deduction of TDS under Section 195 of Income Tax Act.

It further says that the issue of classifying salaries of expats, paid either directly to expats or through the parent company, as a ‘manpower supply’ service and liable to Service Tax under Reverse charge basis is unsettling all previous understanding of the industry that such payments are not liable to Service Tax.

It, therefore, has requested that the Supreme Court judgment requires a reconsideration. It has sought the support of the government to diffuse the issue.

NEW DELHI: The GST department has cracked down on several multinational companies (MNCs), and made them pay up heavy taxes on salaries paid to expat employees. Sources told this newspaper that the department has made Maruti Suzuki pay up Rs 100 crore and HUL Rs 144 crore on account of salaries paid to employees from overseas parent companies. Honda Motors is also one of the entities, which have been made to pay up taxes. However, this newspaper could not ascertain the amount paid by Honda. As per sources, the industry has been calling for immediate government clarification and relaxation in light of this development. CII and SIAM have made a representation in this regard to the government.googletag.cmd.push(function() {googletag.display('div-gpt-ad-8052921-2'); }); The tax issue cropped up after a Supreme Court verdict in May 2022 held that salaries paid by Indian entities for the expats who are seconded by the foreign parent company to the Indian entity are liable to service tax under reverse charge basis as the payment will be considered as ‘manpower supply’ services provided by the foreign parent company to the Indian entity. After the verdict, the GST department has shot tax notices to several MNCs making tax demands. Secondment of employee is an arrangement where an employee of an organization is assigned to either a different department/unit within the organisation or a different business (usually a client). This newspaper contacted Maruti Suzuki, HUL and Honda for their response. While the Maruti Suzuki spokesperson did not confirm the amount of tax they had to pay, she said that SIAM has been in talks with the government on behalf of the auto industry. HUL spokesperson didn’t respond to either email or text message sent by this newspaper. Honda sought more time to respond. In a representation made by CII on behalf of the industry, it has pleaded that seconded employees become formal employees of Indian entities by way of issuance of formal appointment letters. Their salaries are subject to TDS provisions under Section 192 of the Income Tax Act and PF provisions in similar ways as are applicable to any Indian employee engaged by the same company.  The CII has argued that these expats are also issued Form 16 for the TDS deducted on salaries, and that the Income Tax authorities were also allowing remittance to foreign companies for the salaries of expats employed by Indian entities without any deduction of TDS under Section 195 of Income Tax Act. It further says that the issue of classifying salaries of expats, paid either directly to expats or through the parent company, as a ‘manpower supply’ service and liable to Service Tax under Reverse charge basis is unsettling all previous understanding of the industry that such payments are not liable to Service Tax. It, therefore, has requested that the Supreme Court judgment requires a reconsideration. It has sought the support of the government to diffuse the issue.