The Punjab and Haryana Court has provided temporary relief to BMW India regarding a show cause notice issued by authorities concerning the goods and services tax (GST) on expatriate salaries reimbursed to parent companies.
The court has instructed BMW India to submit a clarification as a response to the show cause notice, while also directing the authorities not to take any strict measures to recover the tax while the company’s writ petition is pending.
Multinational corporations (MNCs) running their businesses in India are receiving GST demands from authorities related to this condition. The demands involve an 18 per cent tax on salaries and allowances paid to foreign expatriates.
As per the GST authorities, salaries or allowances given to expatriates by Indian companies and later reimbursed to foreign entities are regarded as a “manpower supply,” resulting in their liability for taxation under the GST system.
Nevertheless, if Indian companies directly pay salaries to expat employees without any reimbursement, those salaries are exempt from GST since the expats are then treated as exclusive employees of the Indian company.
These notifications followed a verdict by the Supreme Court in May 2022 in the case of Northern Operating System (NOS), which declared that the secondment (deputation) of employees from a foreign group to an Indian organization is considered a “manpower supply service” and is liable for service tax under the reverse charge mechanism.
Several companies, including BMW India, have reached to the court to challenge the notifications seeking clarification after the Punjab and Haryana High Court stayed the implementation of a notification to Mitsubishi Electric India concerning this GST demand.
Harpreet Singh, an indirect tax partner at KPMG India, stated that all multinational corporations with expatriates in India are closely monitoring these proceedings.
Singh mentioned that an order to suspend similar to the situation is appreciated, as many companies are facing investigations and notifications regarding the taxability of expatriate salaries and reimbursements.
He added that it is reassuring to observe that different high courts are examining the specific circumstances of each case and granting relief based on merit, rather than blindly adhering to the Supreme Court ruling as a precedent for taxing all arrangements involving expatriates.
