New Delhi, ESOPs granted by foreign companies to employees of their Indian subsidiary at prevailing market value will not attract GST, the CBIC said.
However, employee stock option (ESOP)/employee stock purchase plan (ESPP)/restricted stock unit (RSU) provided by a foreign company to its subsidiary employee in India would be included in net GST if An additional amount is included above the cost of the securities/shares and is charged by the foreign holding company to the domestic subsidiary.
This clarification is part of the 16 circulars issued by the Central Board of Indirect Taxes and Customs (CBIC), after the GST Council meeting on June 22.
Some Indian companies offer their employees the option of allocating securities/shares of their foreign holding company as part of the compensation package as per the terms of the employment contract.
In such cases, on exercise of the option by employees of an Indian subsidiary, the securities of a foreign holding company are allocated directly by the holding company to the employee. The cost of such securities is generally reimbursed by the subsidiary to the holding company.
Clarifying the doubts raised regarding taxation of such transaction under the GST, CBIC said that redemption of such securities is generally made by a domestic subsidiary company to a foreign holding company on a cost-to-cost basis, equivalent to the market value of securities without any element of additional fee, margin or commission.
Since such reimbursement by the domestic subsidiary to the foreign holding company is for the transfer of securities/shares, which is not in the nature of goods or services, the same cannot be treated as an import of services by the domestic subsidiary. from the foreign country. holding company and is therefore not subject to GST.
However, if the foreign holding company charges any additional fee, margin or commission from the domestic subsidiary for issuing ESOP/ESPP/RSU to the employees of the Indian branch, then the same will be considered as consideration for supply. of services to facilitate/organize the transaction of securities/shares by the foreign holding company to the domestic subsidiary.
In such cases, GST will be levied on the amount of additional fee, margin or commission charged by the foreign holding company to the domestic subsidiary for issuing its securities/shares to the employees of the latter.
The GST will be payable by the domestic holding company on reverse charge basis on such import of services from the foreign holding company, the CBIC said.
Moore Singhi CEO Rajat Mohan said the GST department has recently examined numerous cases where Indian companies provide ESOPs, ESPPs or RSUs through their overseas holding companies, and are considering the idea of imposing the GST to their Indian counterparts for the import of services.
"The tax situation has now been clarified, confirming that no GST will be charged on transactions between the domestic company and its foreign subsidiary, as there is no supply between the two. This clarification underlines the principle that GST applies only to actual supplies and not to internal agreements within a business group," Mohan added.
However, employee stock option (ESOP)/employee stock purchase plan (ESPP)/restricted stock unit (RSU) provided by a foreign company to its subsidiary employee in India would be included in net GST if An additional amount is included above the cost of the securities/shares and is charged by the foreign holding company to the domestic subsidiary.
This clarification is part of the 16 circulars issued by the Central Board of Indirect Taxes and Customs (CBIC), after the GST Council meeting on June 22.
Some Indian companies offer their employees the option of allocating securities/shares of their foreign holding company as part of the compensation package as per the terms of the employment contract.
In such cases, on exercise of the option by employees of an Indian subsidiary, the securities of a foreign holding company are allocated directly by the holding company to the employee. The cost of such securities is generally reimbursed by the subsidiary to the holding company.
Clarifying the doubts raised regarding taxation of such transaction under the GST, CBIC said that redemption of such securities is generally made by a domestic subsidiary company to a foreign holding company on a cost-to-cost basis, equivalent to the market value of securities without any element of additional fee, margin or commission.
Since such reimbursement by the domestic subsidiary to the foreign holding company is for the transfer of securities/shares, which is not in the nature of goods or services, the same cannot be treated as an import of services by the domestic subsidiary. from the foreign country. holding company and is therefore not subject to GST.
However, if the foreign holding company charges any additional fee, margin or commission from the domestic subsidiary for issuing ESOP/ESPP/RSU to the employees of the Indian branch, then the same will be considered as consideration for supply. of services to facilitate/organize the transaction of securities/shares by the foreign holding company to the domestic subsidiary.
In such cases, GST will be levied on the amount of additional fee, margin or commission charged by the foreign holding company to the domestic subsidiary for issuing its securities/shares to the employees of the latter.
The GST will be payable by the domestic holding company on reverse charge basis on such import of services from the foreign holding company, the CBIC said.
Moore Singhi CEO Rajat Mohan said the GST department has recently examined numerous cases where Indian companies provide ESOPs, ESPPs or RSUs through their overseas holding companies, and are considering the idea of imposing the GST to their Indian counterparts for the import of services.
"The tax situation has now been clarified, confirming that no GST will be charged on transactions between the domestic company and its foreign subsidiary, as there is no supply between the two. This clarification underlines the principle that GST applies only to actual supplies and not to internal agreements within a business group," Mohan added.
