Corporates like Tata group, M&M, ICICI Bank may have to pay higher GST on brand, logo
Some of the corporates like Tata group, Mahindra Group, ICICI Bank, and HSBC Bank, among others, who have multiple subsidiaries and group companies, may face additional taxes under the Goods and Services Tax (GST) on their intangibles, such as goodwill, brand, logo fees and even franchise fees paid by them, following a recent adjustment in tax rates.
Worth mentioning here is that the government recently implemented rate parity between ‘right to use’ and ‘transfer of right to use’ under the GST framework, which will affect transactions, where brand names are held in a separate business and subsidiaries, are ‘allowed’ to use it for a fee, the Economic Times mentioned in a report citing tax experts.
Following the move, the tax authorities may begin investigating various groups and corporations about how much their brand names and trademarks are worth and whether or not they impose GST on the amount, the financial daily mentioned.
GST will be levied even if businesses do not charge any fees, according to tax experts.
Even if there is no consideration, a transaction between related parties — a firm and its subsidiary or an Indian arm and its parent company overseas — is liable under the GST rules. As a result, the indirect tax department may issue demands for brands and logos that are held by a holding company or conglomerate but are utilised without payment by subsidiaries and group entities.
Worth mentioning here is that in 2019, the tax agency submitted written inquiry orders to a number of businesses and issued preliminary letters to a number of foreign banks.
The investigations, however, yielded little because of the disparity in tax rates for right to use and transfer of right to use, which both drew GST rates of 12% and 18%, respectively.
Under all circumstances, the government recently announced that the GST would now be 18%. According to insiders, many big groups and conglomerates have consulted legal specialists in this area regarding their tax woes.
“There are some cases already under controversy whether certain supplies should be taxed at 12% or 18% over an ambiguity between right to use or transfer of right to use,” the publication quoted Abhishek A Rastogi, partner at Khaitan & Co, a law firm as saying. “The recent government clarification would mean that goodwill, brand and logo fees, or even franchise fees paid by companies, will be subject to intense scrutiny.”
People with direct knowledge of the matter told the publication that the fear is that fresh notices and tax demands could start coming in as early as December for the large conglomerates.
“Unlike other issues, this issue could yield huge revenue for the tax department. As currently, most groups are either not valuing their intangibles or if they are, the valuations could be questioned, and in most cases, either tax is not paid or paid at a lower level,” a tax expert advising a large group told the business daily.
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