Listed out by legal authorities are some renowned Indian clusters and foreign banks suspected of allowing Indian entities or subsidiaries operating in India to use their brand names and logos for free. The Tax department on this has commanded (via legal notices) such entities to put a valuation on brand names and logos owned by them, charge from the subsidiaries and pay to the government GST at the rate of 18%.
As per the sources, clusters including Tata and Mahindra Groups and banks such as ICICI, HSBC and Citi have received the legal inquiry notice by tax dept. HSBC and TATA declined to comment while others stayed mum to the queries.
Imposing 18% GST means thousands of crores to go into tax from companies and banks, said experts in the field. Well, the government might provide compensation to the subsidiaries operating as the manufacturing unit they said.
According to tax experts, the transaction between the company (cluster) and the subsidiary firm or an Indian firm with a parent company situated in an overseas nation is taxable even if there is no consideration. The prevailing situation has elevated the need for the indirect tax department to impose 18% GST on the brands and logos held by the clusters and used by the subsidiaries in India immune from payments.
Companies that have given alms in the form of brand and logo names to the subsidiary forms or junior Indian firms have to pay GST determining the open market value of the brand or logo name says Ritesh Kanodia, partner, Dhruva Advisors, a tax advisory firm.
As a conclusion, many cluster companies have to ensure the market values of their logo or brand the task which many have not yet exercised.
The scenario is all different for banks and other financial companies as GST has not yet allowed full input tax credit. The tax department seeks banks to pay 18% GST on the estimated value of bank transactions and give tax on the fees they charge.
It’s not the first time that this issue is in limelight. Earlier on 30 January, the tax department issued legal notices to the banks that armed subsidiaries such as mutual fund houses and insurance unit with logos and brand names for free.
Banks such as Bank of Baroda, Kotak Mahindra and State Bank of India are under the taxman’s radar.
Taxes on logos and brand names were never discussed prior to the GST regime. No rules earlier to GST dealt with transactions or supply of services within the branches of a single company. Now, the supply of such services from the parent company or HO to its subsidiary firm is taxable. Under GST governance nothing is entirely free of cost.
