Activities undertaken by liaison offices of a multinational company will not attract GST, Karnataka’s Appellate Authority for Advance Ruling (AAAR) has said.
This ruling, though applicable only to the applicant and jurisdictional tax office, could be used as a persuasive tool for similar matters. Experts feel that this is very important ruling and has the potential to impact many such applications pending at various judicial and quasi-judicial forums.
The applicant, a German company, Fraunhofer-Gesellschaft zur Förderung der angewandten Forschung, established a liaison office in Bengaluru. It was set up as an extended arm of the Head office, and in compliance with RBI norms, it will not generate income in India and will not engage in any trade or commercial activity. It received reimbursement of expenses from head office in order to meet the daily expenses.
AAR order set aside
The company first approached Authority for Advance Ruling (AAR) seeking a ruling on three questions whether the activities of a liaison office amount to supply of services, whether it is required to be registered under CGST Act and it it is liable to pay GST.
In its ruling on October 8, the AAR said that liaison activities undertaken by the applicant as specified by RBI amounts to supply under GST law. Accordingly, the liaison office will need to be registered under CGST Act and liable to pay GST of the place of supply of services in India.
Aggrieved by this order, the company moved the AAAR which held that activities of the liaison office do not amount to supply. Hence, “there is no taxable supply and there is no requirement for obtaining a GST registration or payment of GST. When the liaison office is not required to be registered under GST, the question of whether they are distinct person or establishment of distinct person is irrelevant,” AAAR said while setting aside ruling by AAR.
Source from: https://www.thehindubusinessline.com/news/mncs-liaison-office-not-required-to-pay-gst-aaar/article33944624.ece