GST only on mark-up in case of issue of ESOPs to employees of Indian subsidiaries

MUMBAI: Following the recommendation taken recently at the 53^rdGST council meeting, the Central Board of Indirect Taxes and Customs (

CBIC

) has released a slew of circulars on June 26.
The board has clarified that if the

foreign holding company

charges any additional fee, markup, or commission from the domestic subsidiary company for issuing

Employee Stock Options

(

ESOPs

); shares under the Employee Stock Purchase Plans (ESPPs) or Restricted Stock Unit schemes (RSUs) to the employees of the domestic subsidiary company, then Goods and Services Tax (GST) will apply.
The transaction shall be considered to be in nature of consideration for the supply of services of facilitating/ arranging the transaction in securities/ shares by the foreign holding company to the domestic subsidiary company. GST will be leviable on such amount of the additional fee, markup, or commission, charged by the foreign holding company from the domestic subsidiary for issuance of its securities/shares to the employees of the latter. The GST shall be payable by the domestic holding company on reverse charge basis on such import of services from the foreign holding company.
However, in those cases where the domestic subsidiary company reimburses the cost of such securities/shares to the foreign holding company on a cost-to-cost basis, no GST obligation will arise.
According to tax experts,

MNCs

will have to be clear and precise in the

documentation

of the agreements with their parent companies/affiliate companies.