07.08.2023: Extend corporate guarantee to arm, get in a GST fix

Holding companies that have extended corporate guarantees to their subsidiaries in India are embroiled in litigation relating to demands raised under the Goods and Services Tax (GST) Act. Government officials estimate the aggregate demand over the past three months to be a few hundred crores and admit that litigation is on the upswing.

The contention of the GST authorities is that the corporate guarantee given by the holding company to its subsidiary is a free supply between related parties and falls within the ambit of a taxable ‘schedule-1' transaction. The office of the directorate general of goods and services tax intelligence (DGGI) and state level audit teams are examining such instances across industry sectors.

The GST demand is being raised on the holding company, if it is in India. If it is overseas, the demand is raised on the Indian subsidiary (the recipient of the corporate guarantee) under a reverse charge mechanism.

Source: The Times of India 

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