Tax department officers want to take GST from subsidiaries for using the logo and trademark of their parent companies. People with direct knowledge of the matter seem bewildered because they feel this will trouble the use of a common logo across subsidiaries as Taxman wants to charge GST on an abstract value.
While the indirect tax department has already circulated notices to the banks which states that the subsidiaries can use the logo and trademark without paying any fee or at a very low fee.
According to the tax department first the precise value for using the trademarks and logos needs to be calculated, then only the tax department can take further steps to charge 18% GST on it.
The taxman has already begun interrogating the tax heads, finance heads and CFOs in this matter without the issues of any such notice. They want to make sure that even if the fees for logos are paid then its paid at arm’s length. The concept of an arm’s length assures that both parties in the deal are acting in their own self-interest and fees are as per industry standards.
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This in-depth interrogation has startled many organisations and the same has become a big discussion for higher authorities of the company. Most of the Indian companies do not pay any such fee while this trend to pay for logos is pursued by many multinational companies.
“Organisations should evaluate the applicability of GST and in case of related parties, the valuation assigned where are licensed. The administration needs to consider simplifying the valuation principles to enhance certainty,” said Uday Pimprikar, national leader of indirect tax, EY India.
Earlier it was reported that the indirect tax officers had delivered notices to banks to liberate subsidiaries like a mutual fund and insurance units, etc to take benefits of their logos as complimentary. In contrast to it, The tax department wants to levy 18% GST on the “deemed” value of such transactions and has even calculated the value of using these logos as per industry standards.
“This is a very serious issue for businesses that permit their logos to be used by their affiliates. It is essential to evaluate it comprehensively considering all tax aspects and not only from a GST perspective,” MS Mani, Partner, Deloitte India.
Tax experts admitted that they were never concerned about tax on logo and brand because of the absence of regulations that deals with the free supply of services between related parties prior to GST. Under GST, a “supply of brand” is considered to have taken place from the parent company who holds the license of Logos & Trademarks to the subsidiary, which is a related party.
Some companies have their logos and trademarks with the parent company while some have them with the holding companies as a result different companies will deal with the same issue differently.
While on the complex side of the situation, the companies do not reside in India but having a subsidiary outside India. But as of now, there is no subsidiary which is paying fees to the parent company.
