Tamil Nadu Appellate Authority for Advance Ruling (AAAR) has recently ruled that any reimbursement by any Holding company for expenses incurred by employees of Indian subsidiary should be taxed under GST.

Appeal Number

AAAR/10/2021 

Order No. and Date

 TN/AAAR/11/2021(AR) DATED 30.03.2021

Applicant Name

M/s ICU Medical India LLP

Brief Facts of the case

  

M/s ICU Medical India LLP (subsidiary company) is engaged in the business of software development for the Infusion system manufactured by its ultimate holding Company ICU Medical Inc. (Holding Company), having its place of business located at USA. ICU Inc., in turn has entered into a Cardholder User agreement with the employees of the Indian Company for issuance of Credit Cards.

As per the details of the case, the holding company had provided credit cards to employees of the subsidiary for incurring business-related expenses within and outside India.

The subsidiary company books the expenses in its books based on the invoices provided by the employees and the credit card statement. The Indian Company debits the respective expenses account and credits the intercompany payable account. Where Input tax credit is involved, the eligible GST amount will be debited to the GST Input Tax credit account by crediting the expenses Account. Subsequently, ICU Inc. recovers this amount from Appellant. A commercial invoice is raised by ICU Inc. on the appellant for the reimbursement towards payment for expenses incurred by the Appellant. ICU Inc., raises a monthly commercial invoice on the appellant under two categories mentioned below:

  •      Reimbursement of payment made towards Credit Card Expenses
  •      Reimbursement of Bank Charges towards Credit Card Expenses

The Indian company provides software development service to ICU Inc., under a software development agreement. The consideration for the development service is agreed to be made on a cost plus margin basis. The expenses incurred by the Indian company through this credit card also forms part of software development cost aid subsequently included in invoice raised by the appellant on ICU Inc for development of software.

 

Ruling

AAAR ruled that the holding company is providing credit services to the Indian arm for furtherance of business which falls under the definition of Supply under GST. Further, the said services qualify as import of services and therefore the subsidiary is liable to pay 18% GST.

As per ruling :

The GST is leviable on the reimbursement amount, being advance payment made by the holding company towards the cost incurred for the provision of Software Services supplied by the appellant, as per the Time of Supply provided under Section 13 of the CGST/TNGST Act 2017 and applicable rate is that applicable to the supply of Software Services made by them.


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