TaxTMI 
TaxTMI 
TaxTMI 
There has been a lot of discussion of late on the Work From Home option being given by employers to employees and the same impacting PE concept under Income Tax law. This is owing to the 2025 update in OECD Model Tax Convention in the context of guidance on remote working scenario. In the Indian context, it is worth looking at this from the GST perspective as well. Even if we are to consider a scenario where employees are permitted to work from remote locations and they work exclusively for the employer’s own needs, it is worth looking at possible impact. It is worth noting that the concept of “casual taxable person” under section 2(20) of CGST Act 2017 covers occasional supply scenarios in any State of the country where the supplier does not have a fixed place of business. This is to conservatively require registration for the supplier under GST even if such supply is occasional and not regular.
The term “fixed establishment” in the context of GST law has been defined u/s 2(50) of CGST Act 2017 as follows - 'fixed establishment' means a place (other than the registered place of business) which is characterised by a sufficient degree of permanence and suitable structure in terms of human and technical resources to supply services, or to receive and use services for its own needs.
Degree of permanence and structure
The need for sufficient degree of permanence and for existence of suitable structure in terms of human and technical resource has been well highlighted by Courts over the years. In the context of GST, one could look at the famous Preliminary Ruling of the European Court (Sixth Chamber) Case C 190/95 decided on 17th July 1997 in ARO Lease BV Vs Tax Inspector for Large Businesses Amsterdam where the issue was if maintaining a fleet of cars in Belgium by a Netherlands based car leasing entity and operating through self-employed intermediaries in Belgium drawing commission for their services, could result in fixed establishment for the entity in Belgium. The Chamber had taken a view that neither placing vehicles at customers’ disposal under leasing arrangement nor the place of usage of the same could be regarded as a clear, simple and practical criterion to determine the existence of a fixed establishment. The self-employed intermediaries who brought interested customers into contact with the lessor could also not be regarded as permanent human resources.
The leasing company was required to possess in Belgium, either its own staff or a structure which had a sufficient degree of permanence to provide a framework in which agreements could be drawn up or management decisions could be taken to enable the services in question to be supplied on an independent basis. Even temporary keeping of vehicles when the vehicles were not in use of any customer would not bring into equation fixed establishment for the lessor in Belgium unless such an arrangement was also backed by presence of own staff or a permanent structure thereat.
Resources for receiving services
This now takes us to cases where services are received. Even if we are looking solely at a fixed establishment meant to receive services rather than supplying them, the confirmation of the Tenth Chamber of the European Court in SC Adient Ltd & Co. KG Vs National Agency For Tax Administration Romania (Case C 533/22 decided on 13th June 2024) merits consideration where the Court has clearly taken the view that the existence of a fixed establishment of the recipient of the services presupposes that it is possible to identify human and technical resources which are distinct from those used by the supplier for the fulfilment of its own supplies of services, and which are made available to the recipient of those services to ensure that they are received and used in accordance with its own needs. In the absence of such a finding, such a recipient does not have a fixed establishment in the Member State of the supplier and cannot, therefore, be regarded as established in that Member State.
The same means cannot be used both by a taxable person, established in one Member State, to provide services and by a taxable person, established in another Member State, to receive the same services within a supposed fixed establishment situated in the first Member State (judgments of 7 April 2022, Berlin Chemie A. Menarini, C-333/20, EU:C:2022:291, paragraph 54, and of 29 June 2023, Cabot Plastics Belgium, C-232/22, EU:C:2023:530, paragraph 41).
There could be cases where employees are allowed or even asked to work from home or other remote locations by employers whereby the employees continue to work for the said employer and continue to use various facilities provided by employer which helps them in work execution. This could be employer provided laptops, phones, internet services, company provided software, web-based platforms etc. Where service facilities are provided by an employer having his organisation outside India and no establishment in India, but the employee happens to work from India, there could be reverse charge liability under GST for the said employer and he may be obligated to obtain registration in India to discharge such liability under GST.
Readers should note here that in the absence of a separate legal entity being set up by the employer in India, the local registered unit or branch would not be entitled to export of service benefit on employees working for the employer as the unit abroad and the one in India are treated differently under GST only by way of a deeming fictionu/s 8 of Integrated Goods & Services Tax Act 2017 and this is excluded from the definition of export of service u/s 2(6) of the said Act.
Even if the place of supply of service provided by the employee happens to fall outside India, the benefit of zero rating can be denied while the transaction may still be treated as non taxable owing to lack of jurisdiction for Government of India over the point of consumption of service. (A system of law applies to all persons, things, acts, and events within that territory, and does not apply to persons, things, acts, or events elsewhere – Pg 87 of Jurisprudence by Sir John Salmond (Eighth Edition by C.A.W Manning) published by Sweet & Maxwell Limited London) read with GVK INDS. LTD. & ANR. Versus THE INCOME TAX OFFICER & ANR. - 2011 (3) TMI 1 - Supreme Court also followed in the context of service tax in MESSRS SAL STEEL LTD. & 1 Other (S) Versus UNION OF INDIA - 2019 (9) TMI 1315 - GUJARAT HIGH COURT.
Services received could become taxable owing to reverse charge mechanism being operative on services received from outside India and owing to deeming fiction u/s 15 of Central Goods & Services Tax Act 2017 on related party relation between employer and employee read with entry 2 to schedule I to the said Act dealing with supply without consideration. Readers should also note that relaxation on valuation that is linked to input tax credit availability at recipient end in India would only work where credit is admissible in the first place. This could be called into question where there is no taxable activity in the Indian unit and/or the activity by employee is regarded as a non-taxable activity.
Where employees work from any State for their employer located in another State within the country, the aforesaid complication on reverse charge liability should not arise where the services in question are not liable to be taxed within the country on that basis in the hands of the recipient. Where entities abroad have locally set up entities registered under our laws here, issues should not arise where those local entities are responsible to provide facilities or services to employees to enable them to execute their tasks.
Conclusion
Those organisations which are operating outside India but think of employing people in India owing to a cost advantage but do not happen to have any entity operating within India, should make it a point to get the proposed arrangement reviewed under GST in India for possible impact thereunder. Where this is not done, the risk of possible future demands on reverse charge liability derailing profitability is very high. A stitch in time saves nine and a timely review would enable such organisations to plan carefully to avoid possible pitfalls while at the same time tapping the enormous man power resource available in the country.
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By CA Srikantha Rao T