GST Council to clarify taxability of ESOPs, start-ups and MNCs to benefit

50 GST Council Meeting

In what could be a relief for companies, multinationals, and start-ups issuing ESOPs to employees, the upcoming GST Council is likely to issue clarification on the taxability of reimbursement of securities/shares as ESOP/ESPP/RSU provided by a company to its employees.

Sources said that the 53rd GST Council meeting on June 22 is likely to deliberate and discuss issues with respect to ESOPs or Employee Stock Ownership, or Employee Share Ownership, simply put, where a company’s employees own shares in that company.

The Council-nominated Law Committee has proposed that “no supply of service appears to be taking place between a foreign holding company and the domestic subsidiary company where the foreign holding company issues ESOP/ESPP/RSU to the employees of the domestic subsidiary company,” sources said.

Read Also: GST Council Meeting on June 22: Key issues to be considered

Further, “The domestic subsidiary company reimburses the cost of such securities/shares to the foreign holding company on a cost-to-cost basis,” sources shared.

The Council could lay out case scenarios where it says that “in cases where an additional fee, markup, or commission is charged by the foreign holding company from the domestic subsidiary company, over and above the cost of the securities/shares, GST would be leviable only on the additional fee, markup, or commission charged,” sources added.

The Council could also clarify that “This additional amount should be treated as consideration for the supply of services of facilitating/arranging the transaction. And the GST shall be payable by the domestic subsidiary company on a reverse charge basis in such a case on the said import of services.”

Experts see this as a much-needed clarity as this helps in assessing the right transaction and the right way of accounting to pay taxes. It remains to be seen what view the Council takes on June 22.

Read Also: Online gaming firms likely to be left in the lurch at GST Council meet
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