外国人駐在員の給与の立替払いに対するGSTの影響｜「人材派遣サービス」に該当するか

Time limit of issuance of notice for GST Assessment for FY 2017-18 lapsed on 30th September, 2023. Every industry is flooded with GST notices on various allegations including Purchase from canceled dealers, ITC reversal on exempted supplies, ITC ineligible under Section 17(5) of CGST etc. Notices are issued for FY 2017-18 till FY 2022-23.

One of the issues on which thousands of MNCs have received notice is GST on salary of foreign expats paid by foreign parent companies. GST Authorities have alleged that Indian Subsidiaries are liable to pay GST on such reimbursement considering it as “Manpower Supply services” rendered by the parent company.

This article makes a detailed discussion on applicability of GST on reimbursement of Expat salaries and what action Indian companies are required to take to avoid such liability:

1. Framework of salary payments to Foreign Expats

Employment of foreign expats works in following scenarios:

1. In general, Indian entities enter into a contract with overseas group entities for rendering back office or IT Support services.
2. Overseas entities maintain a pool of skilled employees located in their own territory and assign them to the Indian entities as per their request.
3. These expats work under control and guidelines of Indian entities.
4. However, to maintain the social security benefit of these employees, their employment contract remains vested with the foreign company only and their remuneration is also paid by the foreign company.
5. Indian companies reimburse the remuneration of foreign expats to the Foreign Company.
6. In some cases, Indian companies may also enter into employment contracts with Foreign expats and remit remuneration to them directly.

2. Issue under Litigation

GST Authorities have contended that Foreign Companies are providing “Manpower Supply services” to the Indian Companies. Since, place of supply for such service lies in India and location of service provider is outside India, therefore, such supply shall tantamount to “Import of service” and Indian Companies are liable to pay GST on such services under Reverse Charge Mechanism.

GST Authorities are also content if salaries to expats are paid by Indian companies directly then GST authorities have no objection as these foreign expats are considered as employees of Indian Subsidiaries.

3. Legal Framework

Flood of Show Cause Notices on salary of foreign expats is consequent of recent judgment of Hon’ble Supreme court in the matter of M/s C.C., C.E. & S.T., Bangalore (Adjudication) Vs Northern Operating Systems Pvt. Ltd. [2022 (61) G.S.T.L. 129 (S.C)] wherein Hon'ble apex court analyzed whether the activity of secondment of employees from a foreign group company to an Indian entity amounted to manpower supply service and required Indian entities to pay GST under RCM.

Hon’ble Apex court made following analysis:

1. ‘Control’ is not the only factor which is to be considered to determine who is the employer of the foreign expats. Further, there is no one single determinative factor, which the courts give primacy to while deciding this question.
2. In the given case, Secondment is part of the global policy of the foreign company loaning their services to the Indian Company on a temporary basis. On cessation of secondment period, Foreign expats are to be repatriated to foreign companies in accordance with the global repatriation policy. Further, agreement between Indian Company and foreign company does not state that the foreign expats would be treated as Indian Company employees after the seconded period.
3. As per the agreements entered into between Indian Companies and Foreign Companies, the overseas company has a pool of highly skilled employees and these employees are seconded to the Indian entity for the use of their skills and upon cessation of terms of secondment, they return to their overseas employer, or are deployed on some other secondment.
4. Even though control over performance of seconded employee’s work is with Indian Company, the fact remains that their overseas employer in relation to its business, deploys them to Indian Company, on secondment. 
5. The salaries of foreign expats are paid by foreign companies and such salary is paid in accordance with policy of the overseas company, who is the employer of such foreign expats.
6. Therefore, Hon’ble Apex court held that the overseas entity will continue to be the employer of the seconded employee and not the Indian entity.

4. GST Implication

Even though precedence was issued with respect to service tax law, i.e., Pre-GST regime, it will have a major impact under GST as well. Under the GST regime, if such services are considered Manpower Supply services, place of supply shall be determined in accordance with provisions of Section 13 of IGST Act.

As per Section 13 of IGST Act, “place of supply” of manpower services shall be determined as per Section 13(2), i.e, location of recipient. Location of supplier is outside India and place of supply is in India, so, cases where such service is considered as “Manpower Supply service”, such supply shall be considered as “Import of Service” and Indian company is required to pay GST under Reverse Charge Mechanism.

5. Way ahead

a. Factors to be considered to determine “Employment Contract” or “Manpower Supply Service”

Hon’ble Apex court has determined following factors which are to be considered collectively to determine who is the employer of the Foreign expats:

1. Who is liable to make payment of remuneration to foreign expats?
2. Who is entitled to exercise control over the work of Foreign expats?
3. What is to be done with foreign expats post completion of assignment with Indian expats, i.e., whether they will remain with an Indian entity or will return to foreign company?
4. Whether remuneration is paid in terms of policies of foreign companies or Indian companies?
5. Whether there exists any employment contract between Indian companies and foreign expats?
6. Whether foreign expats are assigned on “Assignment Basis” or on “periodical basis”.

b. 過剰なキャッシュアウトフロー

RCM（リバースチャージ方式）に基づくGSTの納税義務は、電子現金元帳を通じてのみ支払う必要があり、電子クレジット元帳では支払えない点に留意が必要です。そのため、当該サービスが「人材派遣サービス」とみなされた場合、インド企業にとって多額のキャッシュアウトフローが生じる可能性があります。

さらに、ITC（仕入税額控除）が蓄積している、または電子クレジット元帳に残高がある企業は、現金で支払わなければならないITCの不必要な積み上げに直面する可能性があります。

c. 契約書の慎重な作成

したがって、GSTの納税義務を回避し、多額のキャッシュアウトフローを防ぐ唯一の手段は、インド企業と外国企業間の契約書を慎重に作成することです。契約内容の書き方次第で税務上の立場が完全に変わり、多額の税金や罰金が科される可能性があるためです。

そのため、これらの契約や取引を精査し、両社および従業員の利益を保護するための特定の条項を盛り込むことが極めて重要です。