Taxability of Crossborder. under Service tax. September 2014

Transcription

1 Taxability of Crossborder transactions under Service tax September 2014

2 Contents 1 Relevance 2 Place of Provision of Services Rules, Infosys Ruling 4 Global Developments 5 Key areas for consideration 2

3 Relevance Levy Service tax on services provided or agreed to be provided in taxable territory Taxable Territory All India (including territorial waters, CSI and EEZ) except Jammu & Kashmir Multiple Presence Establishments in taxable territory and non-taxable territory to be treated as separate persons Services by person in nontaxable territory Taxable if place of provision of services is in taxable territory Person liable to pay Service tax Service recipient under reverse charge mechanism if services are deemed to be provided in the taxable territory Place of Provision of Services Rules to determine the place where service is deemed to be provided 3

4 Place of Provision of Services Rules, 2012 Generic Rule Location of Service recipient (Rule 3) Location of provider- if location of receiver is not available in the ordinary course (Rule 3) Specific Rules Place of performance (Rule 4) Location of immovable property (Rule 5) Location of event (Rule 6) Location of service provider for specified services (Rule 9) Location of person liable to pay tax in GTA services For others - Place of destination - (Rule 10) Embarkation place for journey passenger transport (Rule 11) On board on conveyance First scheduled point of departure of conveyance (Rule 12) Other aspects Services provided at more than one location - taxable territory where greatest proportion of service is provided (Rule 7) Provision of services where service provider and recipient located in taxable territory- Location of Service recipient (Rule 8) Where a service falls under more than one rule than the rule which appears later shall be applicable (Rule 14) 4

5 Infosys Ltd v. CST, Bangalore [TS-64-Tribunal-2014 (Bang)] Infosys India (head office) India 1 Mandate for software development services USA Overseas Customer 2 Outsource onsite software development services Infosys Foreign branch 3 Sub-contracted onsite services Overseas Subcontractor Infosys India making payment to Sub-contractor in following ways: 1. Directly through EEFC account 2. Through foreign branch office Key observations:- Head office and branch are separate person for the purpose of levy of Service tax Services are provided outside India by overseas sub-contractor Services are received by foreign branch, outside India. Accordingly, Infosys India is not liable to pay Service tax under reverse charge mechanism on the payment made to overseas sub-contractor either directly or through branch 7

6 Global Developments BEPS Increased focus on tax erosion in digital economy Example 1 India Indian Tax Provisions Service Receiver Download of information / data online Place of provision of service is location of service provider i.e. outside India No Service tax payable by the service recipient in India Service Provider Outside India Provisions outside India Most likely to qualify as export No tax payable in either jurisdiction 6

7 Global Developments BEPS (Contd.) Increased focus on tax erosion in digital economy Example 2 India Indian Tax Provisions Service Receiver Download of software/ games/ content by end consumers Service Provider Outside India Upfront exemption for services received by Individuals from outside India, for any purpose other than business or commerce No Service tax payable by the service recipient in India Provisions outside India Most likely to qualify as export No tax payable in either jurisdiction 7

8 Key areas for consideration Place of provision of B2B services specifically in relation to services provided by an intermediary should be re-looked at Upfront exemption from reverse charge in case of 100 percent exports units Mechanism for payment of tax under reverse charge using CENVAT credit Clarification in respect of taxability of employees reimbursements Need for alignment of State-wise Place of Provision of Services Rules for proposed GST regime 8

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