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07 December 2018
The Advance Ruling Authority (ARA) was constituted under Indian goods and services tax (GST) law and entrusted with the responsibility of answering questions regarding:
While an ARA ruling is binding only on the taxpayer that raises the question, it carries persuasive value in identical situations.
In a recent advance ruling,(1) the applicant, a company headquartered in the Netherlands, established its liaison office in Jaipur, India in December 2007 with the necessary prior regulatory approvals.
The Indian liaison office sought an advance ruling from the ARA on the following questions:
According to the liaison office:
In light of the above, the liaison office submitted that its activities did not fall within the scope of 'supply', as defined by Sections 2(102) and 7 of the Central GST Act 2017. In order to qualify as supply, the taxable event should be triggered by a person in the course of furthering the business. Further, to qualify as a service, the activity must be carried out by a person for which a separate consideration is charged.
The liaison office further submitted that, as per Section 22 of the Central GST Act, the requirement to register in a state or union arises only when a supplier makes a taxable supply and crosses the applicable threshold (ie, turnover of more than Rs2 million in a financial year).
The liaison office was strictly prohibited from undertaking any commercial or industrial trading activities in its own name for fees or commission; thus, no taxable supply was made by the liaison office. Further, the liaison office was not covered under the compulsory registration category of persons specified under Section 24 of the Central GST Act.
After considering all of the submissions, the ARA held that the Indian liaison office rendered no consultancy or other services and had no significant commitment powers, except those which were required for the normal functioning of the liaison office on the home office's behalf. The ARA also observed that there was no separate consideration being charged by the liaison office for the activities carried out by it (except for the reimbursement of its expenses). Thus, the ARA found that the liaison office was not liable for GST. The ARA also noted that the liaison office need not register under Section 22 of the Central GST Act, as it made no taxable supplies.
The ARA's ruling is crucial, as many multinational companies have opened branches and liaison offices in India to undertake such activities. These branches and offices merely receive reimbursement for the expenses that they incur. Many companies have had considerable doubts as to whether they must register, pay GST and file returns in respect of these reimbursements. While the courts and tribunals have issued few judgments pertaining to the pre-GST era, the applicability of these decisions in the current context is doubtful. Thus, the ARA's decision has provided welcomed clarity.
For further information on this topic please contact Amit Kumar Sarkar at BDO in India by telephone (+91 22 3332 1600) or email (firstname.lastname@example.org). The BDO in India website can be accessed at www.bdo.in.
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Amit Kumar Sarkar