Intra-company services provided by employees of a branch office to the head office or vice versa will attract Goods and Services Tax (GST) if the two offices have separate registrations, the authority for advance rulings (AAR) in Tamil Nadu has ruled.
GST will be applicable even if employees have been appointed for the company as a whole. Usually, two offices have separate registrations if they are located in two different states.
Abhishek Jain, national head indirect taxes at KPMG, said such services will attract 18 per cent GST as he warned that the ruling could open the door for litigation.
The case relates to Profisolutions Pvt Ltd which provides solutions in various industries and has its head office in Bengaluru and a branch office in Chennai. The branch office provides support services like engineering, design, and accounting to the head office. The two offices have different GST registrations.
Profisolutions said employees are appointed for the company as a whole and not specifically employed for the head office or branch office.
The company said no invoice is issued and no GST is paid for services provided by employees at the branch office to the head office.
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However, the AAR observed that any supply of services between two separately registered offices of the same entity will be treated as supply between two different persons.
The AAR ruled that services provided by the branch office to the head office and vice versa, each having separate registration will attract GST. These services include those provided by the common employees of the entity concerned.
There has been debate on whether services provided by two different offices of the same company constitute supply or not under the GST regime. Experts believe that the ruling will accentuate that debate.
"The ruling could open another Pandora's box on the already existing debate of there being a supply of service from the head office to its branch offices and related valuation," said Jain.
The ruling upholds identification of common human resources and there being a provision of entra-entity services by these resources.
Such identification itself would be a challenge for companies and could open a new series of litigation on services from branch offices to head office as well, he said.