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MoF: Meetings on GST, Corporate Tax and Transfer Pricing issues
MoF: Meetings on GST, Corporate Tax and Transfer Pricing issues

May 3, 2024

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We, along with the industry, held detailed discussions with the senior officials of Ministry of Finance on April 26 and 27, 2024 on key measures to improve ease of doing business under GST and corporate tax and also increase the global competitiveness of India’s transfer pricing regime. 

Goods and Services Tax – 

Issues specific to IT/ITeS sector

  1. Intermediary issue – This continues to be an issue in spite of issuance a circular by the government in September 2021. We requested the government to issue an updated circular accepting the judgements given by the courts, along with additional scenarios where services are provided on a principal-to-principal basis
  2. Treatment of bad debts, since GST law does not specifically allow for an adjustment for bad debts. This becomes a cost to the service provider. We have requested that in case of exports, taxpayers must not be required to discharge tax along with applicable interest for bad debts. This would be in line with the provisions under the erstwhile regime where the taxpayer was not required to pay tax.
  3. Challenges w.r.t. head office – branch office operations – We explained the different types of models being followed within the industry. In case of invoicing by branch, tax officers are disregarding the “export of services” and issuing demands by treating the overseas branches as mere establishments of distinct persons. Further, in case of invoicing by Head office in India, tax officers are contending that procurements by the Branch qualifies as ‘import of services’ for a consideration.

Cross sectoral issues

  1. Share-based payment to employees -We have requested the government to clarify that mere reimbursement of expense by Indian company for issuance of shares to its employees of foreign listed company is not an import of services under Schedule I of CGST Act.
  2. Free of cost supply of intangibles - We discussed that demands are being raised by tax officers based on an expansive interpretation of the deeming fiction wherein a taxable supply of service from the overseas related party (even where there is no consideration) is being alleged, including cases where no such supply exists in the first place. Hence, there is a need for clarification that where there is no “commercial exploitation”, in the absence of an underlying supply, and no consideration, no GST is payable.

Issues pertaining to e-commerce sector

  1. Review of applicable rate of tax collection at source - We discussed the need for reduction in the rate of TCS, given the working capital impact on sellers and administrative burden on revenue authorities.
  2. Virtual place of business (VPoB) for seller of goods operating through ECOs - We discussed the need for enabling a VPoB for sellers selling through ECOs given the operational and practical challenges involved. We also covered the proposal to at least allow the VPoB model for sellers, to the extent of B2C supplies and stock transfers. 

Corporate Tax: The focus of the discussion was to enable ease of doing business for the Industry. We deliberated on issues w.r.t:

  1. Faceless assessments like voluminous information sought during assessments rather than focusing on qualitative aspects of such dataLimited turnaround time for furnishing bulky information, ad hoc/ arbitrary disallowances-unnecessary questioning of commercial expediency of transactions,
  2. Incorrect processing of tax returns such as denial of S. 115BAB benefit despite its selection by taxpayer, mechanical adjustments done based on variations in disclosure in return vis a vis tax audit report, denial of set off and carry forward of losses/ depreciation without any basis, amongst others.
  3. Interpretation of most favoured nation clause in tax treaties post Nestle judgement
  4. issues related to start-ups like angel tax issue, disregarding of valuation reports by tax officers, taxation of employee stock option plans, etc.  
  5. Other issue relating to MSME and ease of doing business measures.

Transfer Pricing: We discussed the following issues:

  1. Safe harbour regime – We highlighted that the current safe harbour markups of 17-24% are very high in comparison to the margins prescribed in other countries (5 – 12%). This makes GCC uncompetitive. Further, the threshold for applicability of the regime is very low (companies having international transaction up to INR 200 Cr), which eliminates many medium sized companies from taking benefit of this regime. Hence, there is a need to reduce the margins and increase the threshold for applicability of the regime.  
  2. Improving the effectiveness of Advance Pricing Agreement (APA) regime - Currently, no specific time-lines are prescribed for conclusion of APA. The average time taken for concluding APA is approximately 59.73 months for unilateral APAs and 58.77 months for bilateral APAs (basis all APAs signed till March 31, 2023). In some cases, APAs are concluded post the covered period. We have requested the government to look into this issue.   

These topics, along with several others, formed the core agenda of the discussion, reflecting the pressing need for streamlined tax policies and resolutions to long-standing complexities in the taxation landscape. The suggestions made by us were well received by the ministry. We will be working on the making detailed submissions on some of these topics and will reach out to the Industry for inputs. In case you need more details, please write to tejasvi@nasscom.in.


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