Taxability of Crossborder transactions under Service tax September 2014
Contents 1 Relevance 2 Place of Provision of Services Rules, 2012 3 Infosys Ruling 4 Global Developments 5 Key areas for consideration 2
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
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
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
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
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
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
Bangalore Solitaire, 139/26, 3rd Floor, Inner Ring Road, Koramangala, Bangalore 560071 Tel +91 80 3980 6000 Fax +91 80 3980 6999 Kochi 4/F, Palal Towers, M. G. Road, Ravipuram, Kochi 682016 Tel +91 (484) 302 7000 Fax +91 (484) 302 7001 Thank You Chandigarh SCO 22-23 1st floor. Sector 8 C Madhya Marg Chandigarh 160019 Tel : 0172 3935778 Fax 0172 3935780 Kolkata Infinity Benchmark, Plot No.G-1, 10th floor, Block - EP & GP, Sector - V, Salt Lake City Kolkata 700091 Tel: +91 33 44034066 Fax: +91 33 4403 4199 Information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of particular situation. 2014 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. Chennai No. 10, Mahatma Gandhi Road, Nungambakam, Chennai 600 034 Tel +91 40 3914 5000 Fax +91 40 3914 5999 Delhi Building No.10, Tower B, 8th Floor, DLF Cyber City, Phase II Gurgaon 122002 Haryana Tel +91 124 3074000 Fax +91 124 2549101 Mumbai Lodha Excelus, 1st Floor, Apollo Mills Compound, N.M. Joshi Marg, Mahalakshmi, Mumbai 400 011 Tel +9122 39896000 Fax +91 22 39836000 Pune 703, Godrej Castlemaine Bund Garden Pune 411 001 Tel: +91 20 3058 5764/ 65 Fax: +91 20 30585775 The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International Cooperative ("KPMG International"). Hyderabad 8-2-618/2 Reliance Humsafar, 4th Floor Road No. 11, Banjara Hills Hyderabad 500 034 Tel +91 40 6630 5000 Fax +91 40 6630 5299