Multinational fast food and hotel chains and tech companies that operate through franchisee models in India have come under the taxman’s lens over their royalty income with the indirect tax department questioning the nature of agreement with their franchisees and demanding higher GST.
Under the franchisee model, multinationals allow Indian companies to operate certain stores, hotels or entities with their global brand name, against which they charge a percentage of profit or royalty or any other income.
Most multinationals pay 12% goods and services tax (GST) on the amount, but the department is seeking to levy 18% GST, people familiar with the matter told ET.
That is because GST on payment against the “right to use” a brand name is 12% while it is 18% in case of “transfer of right to use” a brand name. Multinationals claim they are not transferring the brand name or allowing the Indian entity to use the brand name for perpetuity, hence the applicable GST is 12%.
The indirect tax department, however, argues that this is just nomenclature aimed at tax arbitrage. And it has started issuing notices in this regard.
Source: economictimes.com
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