Subsidiary of the client has issued Bonds in foreign country. The proceeds of the issue has been utilised by the subsidiary. Further, repayment of the proceeds has been made by the subsidiary.
Service Tax Department is telling the Holding company to pay Service Tax under Full Reverse Charge on Issue related expenses. Contention of the Department is that as the guarantor is holding company, service tax has to be paid by the holding company.
Whether holding company is liable to pay Service Tax?
Holding Company Not Liable for Service Tax on Subsidiary's Bonds Issued Abroad Under Reverse Charge Mechanism A subsidiary company issued bonds in a foreign country, utilizing and repaying the proceeds independently. The Service Tax Department claims the holding company should pay service tax under the full reverse charge mechanism due to its role as guarantor. Queries arose about the subsidiary's location, effective use of services, and whether it constitutes an export of service. Experts noted that if the subsidiary is in London and the services are utilized there, the holding company in India is not liable for service tax unless the subsidiary defaults. The consensus is that the holding company is not responsible for service tax payments. (AI Summary)
TaxTMI 
TaxTMI 
TaxTMI 
