Recovery of Hotel Expenses

[Kaustubh Karandikar]

XYZ (India) is having a parent company PQR(Germany). Employees of PQR are coming to India for official work and their hotel expenses are initially paid by XYZ and then the same is subsequently recovered from PQR through a debit note. Is XYZ liable to pay GST on the amount recovered from PQR?

[Amit Agrawal]

IF XYZ (India) is 'supplier' of subject services and PQR(Germany) is recipient of those services, THEN GST will be payable (of course, excluding services falling under zero-rated supplies u/s 16 of the IGST Act, 2017).

However, one needs to look into entire arrangements between Parent Co. and Indian subsidiary (including who is providing what services to whom), what was purpose / context of these business trips in those arrangements and under what capacity the parent co. is reimbursing these expenses, before concluding that XYZ (India) is indeed 'supplier' of subject services & PQR(Germany) is the 'recipient'.

Because of multiple possibilities based on factual scenario (to be looked into in its entirety), I find difficulties to give my views - one way or other - on the issue raises only the basis of payment of certain expenses made by Indian subsidiary and its reimbursement from parent foreign Co.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Radha Arun]

Prima facie no service is provided by the Indian entity. However, it's not clear who is invoiced by the hotel: if the Indian entity obtains the invoice and avails ITC this would not be correct, as the service is not used by it. Another possible scenario can be that the Indian entity books the rooms and charges it to the overseas entity after adding a service fee. Here ITC would be available.

[Shilpi Jain]

If this is a mere payment arrangement, no GST would be liable. So best would be that the Indian hotel issues invoice to the foreign entity, treats it as a B2C supply and there would be no liability in the hands of the Indian entity.

If this is all part of any other service agreement/supply agreement the answer will change.

[Kaustubh Karandikar]

Thanks Shilpi ji for your advice.

AI Summary

GST liability on recovered hotel expenses depends on supplier-recipient characterisation and invoicing, affecting ITC and B2C treatment. GST on hotel expenses recovered from a foreign parent depends on whether the Indian subsidiary is the supplier or is merely being reimbursed. If recovery is consideration for a service provided by the Indian entity, GST applies unless zero-rated; if it is a bare reimbursement and the hotel invoices the foreign parent (B2C), no GST arises. Charging a service fee converts the transaction into a taxable supply and affects input tax credit eligibility.