GST authorities are raising inquiries in cases where shares of a foreign parent or holding company are being allotted to an Indian subsidiary’s staff under schemes like employee stock option plan (ESOP) and employee share purchase plan (ESPP).
Indian subsidiaries – largely in the technology sector where ESOP is a popular employee incentive – are facing this issue in GST audit. Separate inquiries are also being raised by authorities. According to tax experts and industry watchers, GST authorities in Karnataka were the first to raise this issue and officials in other states have followed suit.
The stand adopted by GST authorities is that the overseas entity, whose shares are allotted to the employees of the subsidiary company, is not the employer. The obligation of providing shares under the employment contract rests with the Indian subsidiary, but in turn is fulfilled by the overseas entity. Thus, it is an import of service by the Indian entity/subsidiary, which is subject to 18% GST.
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