Comission from Indian Main agent to foreign subagents

[Priya Rajarajan]

We are explaining our nature of activity in brief for your kind advice.

1. In our case seller of goods and purchaser of goods both are situated outside India. We help them to close deal and getting commission for trading of such goods.
2. We provide service to the client situated abroad as mentioned above and getting commission in convertible foreign exchange.
3. This transaction is not Import as goods are not arriving in India.
4. Our service consumed outside India and by nature it is pure export of service.

5.I'm a commission agent and I in turn need to pay to 3 of foreign sub agents.(2 million usd/month per agent)

6.What is the max amount that could be paid to foreign sub agents.

7.What is the procedure and the documents required to provide the bank?

8.Whether the commission paid to foreign sub agent is taxable

[Manoj Agarwal]

You are required to collect and pay service tax under on receipt of commission from foreign party. Even though the service is consumed outside India, it is not 'Export of Service' within the meaning of service tax rules. For further clarifications regarding service tax, if any, kindly email me at servicetaxexpert@yahoo.com

[YAGAY andSUN]

Dear Priya,

Please check Rule 9 (c) as amended in 01-10-2014 in this regard. You are liable to pay the service tax on the basis of above changes made in 2014 and in 2015 in terms of existing exemption, vide notification No. 42/12-ST dated 29.6.2012, to the service provided by a commission agent located outside India to an exporter located in India has been rescinded with immediate effect (i.e. w.e.f. 28^th February 2015). This exemption has become redundant in view of the amendments made in law in the previous budget, in the definition of “intermediary” in the Place of Provision of Services Rules, making the place of provision of a service provided by such agents as outside the taxable territory.

Regards,

YAGAY and SUN

(Management, Business and Indirect Tax Consultants)

[varun arora]

Dear Priya,

On satisfaction of some conditions as mentioned in 42/2012, exporter is eligible for exemption from service tax on the commission paid to the commission agent located outside india. If the commission paid is less than 10% of FOB value. If the commission is paid is more than 10% of FOB value then Service tax is to be paid on the portion of commission exceeding 10%.

However, vide Notification No. 14/2014-S.T. dated 11th July, 2014, Government had amended Rule 2(f) read with Rule 9 of POPS 2012 by replacing defination of 'Intermediary'. to include Commision agent dealing in goods. This provision is effective from 1st October, 2014.

Hence from 1st October, 2014, Taxation of commision agent service dealing in goods will be governed by Rule 9 of Place of Provision of Service Rule, 2012.

As per the said Rule 9, Service will be deemed to be provided at the location of Service Provider'.

Hence in case of indian exporter receiving commision agent service dealing in goods from a commision agent located outside india, place of provision of service would be the place of commision agent i.e. outside india. Hence, Service tax is not applicable in respect of such commision agent service.

NOW Government has rescinded the 42/2012 with immediate effect not 14/2014

As per my view 14/2014 notification nullified effect 42/2012. Assessee should not pay service tax atl all on import of Commision Agent service.

HENCE NO SERVICE TAX AT ALL.

AI Summary

Place of Provision rules determine whether commission payments to foreign subagents attract service tax in cross border brokerage arrangements. This matter concerns whether service tax applies to an Indian commission agent's foreign sourced commission and to payments to foreign subagents. Legal analysis focuses on the Place of Provision of Services Rules, the amended definition of intermediary, a conditional exemption tied to an FOB threshold, and subsequent notifications that variously rescind or amend the exemption; practitioners therefore must determine which notification governs, whether the FOB threshold condition is met, and supply banks with prescribed remittance documentation.