Employee Stock Options, Employee Stock Purchase Plans and Restricted Stock Units given by foreign companies to employees of Indian subsidiaries at prevailing market value will not be attracting GST, the Central Board of Indirect Taxes and Customs has said.
However, if a foreign company offers ESOPs, ESPPS and RSUs to its Indian subsidiary employees and charges an extra amount beyond the securities/shares’ cost, it would fall within the GST ambit.
This clarification forms part of 16 circulars issued by the CBIC, following the meeting of the GST Council on June 22.
Some Indian companies provide the option for allotment of securities or shares of their foreign holding company to their employees as part of the compensation package, as per the terms of the contract of employment.
In such cases, when the employees of an Indian subsidiary exercise the option, the securities of a foreign holding company are allotted directly by it to the employee. The cost of such securities is generally reimbursed by the subsidiary company to the holding company.
Clarifying the doubts raised regarding the taxability of such a transaction under the GST, CBIC said reimbursement of such securities is generally done by a domestic subsidiary company to a foreign holding company on a cost-to-cost basis—equal to the market value of securities without any element of additional fee, mark-up or commission.
Since the said reimbursement by the domestic subsidiary company to the foreign holding company is for the transfer of securities/shares, which is neither in nature of goods nor services, the same cannot be treated as import of services by the domestic subsidiary company from the foreign holding company and hence, is not liable to GST.
However, if the foreign holding company charges any additional fee, mark-up, or commission from the domestic subsidiary company for issuing ESOP to the employees of the India arm, then the same shall be considered to be in nature of consideration for the supply of services of facilitating the transaction in securities by the foreign holding company to the domestic subsidiary.
In these situations, GST will be applicable on the additional fee, mark-up, or commission imposed by the foreign parent company on the local subsidiary for issuing its securities/shares to the employees of the local subsidiary.
GST shall be payable by the domestic holding company on a reverse charge basis on such import of services from the foreign holding company, the CBIC said.
Moore Singhi Group Executive Director for indirect tax, Rajat Mohan, said that recently, numerous cases have been scrutinised by the GST department, where Indian companies provide ESOPs, ESPPS and RSUs through their overseas holding companies, and they are toggling with the idea of imposing GST on Indian counterparts for the import of services.
“The tax position has now been clarified, confirming that no GST will be chargeable on transactions between the domestic company and its foreign subsidiary, as there is no supply between the two. This clarification underscores the principle that GST is applicable only to actual supplies and not to internal arrangements within a corporate group,” Mohan said.
(With inputs from PTI.)