No service tax on payments to expats working in local arms of MNCs

The Advance Ruling Authority has vide its ruling dated 6th November 2015 in the matter of North American Coal Corporation India Pvt. Ltd. Versus Commissioner of Central Excise, Pune-III exempted expats working in India for local arms of Multi-national Companies from the liability to pay service tax on the salary and allowances in terms of the dual employment agreement. In view of which salary will not be eligible to the levy the service tax as per the provisions of the Finance Act.

An appeal was filed by North American Coal Corp. Pvt Ltd India before the Advance Ruling Authority of India in respect of application of service tax on social security benefits given by the parent to an employee working in India on contract. The Advance Ruling Authority ruled that where an employee of a group company is deputed to work in an associate company for a specified period/assignment, the transaction amounts to creating a service provider-service recipient relationship between the two companies and therefore the payments made to expats working in India for local subsidiaries/arms of multinationals by the foreign parent won’t attract service tax.

Although the ruling is case specific, but it might have an effect on tax assessment of other firms under similar circumstances.

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