Budgetory Changes w.r.t. PPS Rule 2012, proposed w.e.f. 01/10/2014

[Vinay Kunte]

What will be the effect of the proposed changes in Rule 2 and effective to Rule 9(c) of Place of Provision of Service Rules 2012, vide Notification No. 14/2014, on the working cost with margin received by Indian Subsidiaries for running the business in India from their foreign parent companies? Even if they are not working as commission agent but involved in trading of goods of the parent companies? Will the entire reimbursement come into the tax net or the export of service benefit will continue to be available?

[Chintamani Bhide]

In my opinion. if they are engaged in Trading of the goods of the parent companies, it will not come under tax net. However, if they simply point out to a prospective buyer who would buy the products of the parent company and earn commission in the process, then they would be covered by proposed changes.

[Vinay Kunte]

Thank you Sir for your valuable opinion.

AI Summary

Place of Provision rules: trading by Indian subsidiaries remains outside service tax, commission-like intermediary services are taxable.
Where an Indian subsidiary genuinely trades in goods of its foreign parent, reimbursements plus margin for doing that do not attract service tax under the proposed Place of Provision of Service Rules amendments; however, if the subsidiary performs intermediary/agency functions by pointing prospective buyers and earning commission-like remuneration, those receipts fall within the amended rules and are taxable, removing export-of-service benefit for such intermediary services.