The order came in a case related to business and promotion activities by the Bangalore-based branch office of a company, the head office of which is incorporated in Germany
The authority held that the branch office and the head office will be treated as establishments of distinct persons
Liaisoning services by the branch office (BO) of a foreign entity in India will draw the goods and services tax (GST), even if transactions between them are without consideration, the Karnataka-based Authority for Advance Rulings (AAR) has said.
The order came in a case related to business and promotion activities by the Bengaluru-based BO of a head office (HO) incorporated in Germany.
Harpreet Singh, partner at KPMG, said the authority referred to the concept of related persons as provided in Section 15 of the Central GST Act to conclude that the applicant and its head office are deemed to be related persons.
Therefore, activities performed by the applicant “falls under the scope of supply even in the absence of consideration, as it is in relation to furtherance of business,” said the authority.
It held that BO and HO will be treated as establishments of distinct persons and the activities performed by them cannot be called export of services.
Singh said: “While transactions between related persons are liable to GST, even if the same are without consideration, ascribing value to the same is always a challenge, especially when appropriate benchmarking is not available. ”
These kinds of services attract 18 per cent GST.