Large Cos, Banks May Have to Split Top Mgmt. Salaries

The Maharashtra bench of the Authority for Advance Ruling (AAR) has said companies must “value” the service provided by the top management and charge it to their branch offices (with a separate GST registration) across India.

Experts said this could create a unique problem for large companies and banks that have several branch offices.

Generally, the salaries of chief executive officers (CEOs) and chief financial officers (CFOs) become expenses only of the head office-where they sit—and not all the branch offices.

However, with the AAR ruling, companies may now have to “cross charge” the common expenses, such as salaries of top management, across the branch offices.

“Under most laws in India, an employee is generally perceived as an employee of the entire Organisation/ company and not of a particular location. Accordingly, there is a strong view that though CXOs are based out of one state, no service is being provided by them to other branches as they are employees if all branches, i.e. the entire organization under the same PAN,” said Harpreet Singh, partner, indirect taxes, KPMG, in India.

The Maharashtra AAR’s ruling said that a CXO’s salary or “managerial and leadership services provided by the registered/corporate office to its group companies can be considered as ‘supply of service”.

Although the rulings of AARs are technically binding only on companies that have applied for it, these are also taken as precedent for the tax law.

Under the goods and services tax (GST) framework, companies have to take a separate registration in each state-maintain these as branch offices and split all expenses.

Branch offices are treated as independent entities for all purposes. The question is what happens to certain common expenses, such as advertising, payment for a lawyer, or even travel expenses incurred by the CEO or the CFO. S-ET

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