GST lens on bank arms using parent’s brand name, log or tagline

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Some top financial institutions have come under the taxman’s lens for goods and services tax (GST) on royalty from subsidiaries for use of the parent’s brand name, logo, or tagline. The tax department has told the banks in recent meetings that if a mutual fund unit uses any brand components, it should pay royalty or similar fees to the parent and 18% GST has to be paid on that amount, said people with knowledge of the matter.

The financial institutions include State Bank of India (SBI), ICICI Bank, HSBC and Axis Bank among others, they said. SBI, ICICI and Axis didn’t respond to queries. HSBC declined to comment.

Currently, most banks either do not charge royalty or get paid a fixed amount, which is set to be challenged by the taxman, said people with knowledge of the matter.

Issue Raised Earlier

“You have supplied services of brand name, logo and tagline to your related persons, for which no consideration was charged and no invoices were issued,” according to a February letter by the tax department to one of the large lenders. ET has seen the missive.

The GST cost could run into thousands of crores every year for large banks, they said.

A transaction between related parties, a company and its subsidiary, is liable even if there is no consideration paid under GST rules. Additionally, the tax department is said to be arguing that there is a ‘supply’ taking place between the custodians of the brand the bank and its related party, or its subsidiaries including mutual fund houses. As per GST law, ‘supply of brand’ is deemed to have taken place from the parent company to the subsidiary, which is a related party.

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