TRANSACTION BETWEEN HOLDING & SUBSIDIARY CO
amiya kumar pradhan
(Querist) 28 September 2010
This query is : Resolved
We are an Indian subsidiary Pvt Ltd company .Our Parent/Holding company is based in Malaysia. Our Parent Co desires to charge Management Consultancy Fee towards imparting knowledge etc. Can the Parent Co do So ? If yes then what will be the tax implication on the Subsidiary company (us). Please advise
Madhava Law Office
(Expert) 28 September 2010
The Indian Subsidiary Company has to pay Service Tax on such amount of Management Consultancy Fees. The liability of such payment of service tax in this case will be of Indian Company for which it has to be registered with Service Tax Department.
Amita Chaudhary
(Expert) 02 October 2010
The transaction between the Malaysian Holding and Indian Subsidiary would be governed by the Income Tax Act and the DTAA between Malaysia and India. In my view the management consultancy provided by the Malaysian Holding would most likely qualify as “ Fee for Technical Services in terms of Article 13 of the Indo-Malaysia DTAA and would be liable to tax in India @ 10% in India. To avoid greater tax exposure, care should be taken to ensure that the transaction is structured in a manner that the Indian Subsidiary does not qualify as a Permanent Establishment in terms of Article 5 of Indo-Malaysia DTAA.
Please note that to avoid transfer pricing issues, the fee paid to the Malaysian Holding should be determined an arm’s length basis. A transfer pricing study would help.
Also keep in mind, that there may be service tax implications as well. Service tax would have to be paid by Indian subsidiary as it is importing services.
Also ensure that the payment to the Malaysian Holding is in compliance with FEMA. The transaction should qualify as permitted normal business transaction provided the transaction value is within the permissible limits.
