GST - Reimbursement of Expenses - Export of service

[KSA Associates]

Mr. A is MD of software company ABC Ltd. ABC Ltd is subsidiary company of XYZ Ltd. (USA). Mr. A went to USA to meet the officials of the parent company for business purpose. During his visit, Expenses like Hotel stay, Air tickets, cab etc. were incurred. All this expenses were borne by ABC lTD. Now ABC ltd is raising the invoice on parent company to recover this expenses incurred. Comment whether this will be treated as Export of services? Also let us know which SAC code should be used for this.

[Ganeshan Kalyani]

It is the recovery of expense by subsidiary company from its parent company. This is taxable as per entry 2 of Sch I.

[Raam Srinivasan Swaminathan Kalpathi]

I am of the opinion that the expenditure would constitute export of services but needs to be structured for GST purposes. Would suggest to treat the expenses as composite supply u/s. 2(30) (i.e.) in the next export of services invoice a separate line item can be introduced under the same SAC 998313 (or whatever) stating reimbursement.  Raising a separate invoice specifically for reimbursement may be viewed by the department as a taxable supply.

[Shilpi Jain]

Should be invoiced in such a way that it is composite supply with the main supply and should be treated as an export of services and not liable to GST. Same HSN as that of main service to be used.

[KALLESHAMURTHY MURTHY K.N.]

Dear Querist, 

Reimbursement of expenses is taxable under GST as import of services. Any other way used to recover the amount of expenditure would remain unsettled in the accounts of the subsidiary unit and also it would be treated as a wilful attempt of tax evasion under GST, if the fact is analysed by the departmental authorities.   

This is my view only and is not to be considered as a legal opinion.

AI Summary

Reimbursement of expenses as export of services depends on invoice structuring and composite supply classification. Recovery of travel and related expenses by a subsidiary from its foreign parent may be treated either as a taxable reimbursement under the statutory deeming of certain supplies or, if invoiced as part of the principal exported service as a composite supply using the same SAC, as part of the export of services and not separately liable to GST; forum responses stress invoice structuring and classification, and caution that mischaracterisation could attract departmental scrutiny or be treated as import of services.