Indian conglomerates that use a common logo across subsidiaries are in for some trouble as the taxman wants to levy Goods and Services Tax (GST) on notional valuation of these brands. After issuing notices to banks, the indirect tax department has turned their attention to Indian conglomerates and companies for allowing their subsidiaries to use their logos for free or at a lower price. The tax department wants to first discover the exact valuation of these brands and logos, calculate the fees subsidiaries must pay to the parent and then levy 18% GST on that.
While no notices have been issued yet, the taxman has started questioning tax heads, finance heads and CFOs in this regard, said people with direct knowledge of the matter. Even in cases where subsidiaries pay fees for using logos, taxman wants to find out if the fees paid was at an “arm’s length.” Arm’s length is a concept wherein the tax department decides whether the fees are as per industry standards or subsidiaries are being given a special treatment. The tax department’s line of questioning has spooked several companies and the issue is being discussed at the highest level, said insiders. In most cases Indian companies to not pay these fees and only multinationals tend to pay for logos to their parent.