GST lens on bank arms using parent’s brand name, log or tagline

Some top financial institutions have come under the taxman’s lens for goods and services tax (GST) on royalty from subsidiaries for use of the parent’s brand name, logo, or tagline. The tax department has told the banks in recent meetings that if a mutual fund unit uses any brand components, it should pay royalty or similar fees to the parent and 18% GST has to be paid on that amount, said people with knowledge of the matter.

The financial institutions include

(SBI), , HSBC and among others, they said. , ICICI and Axis didn’t respond to queries. HSBC declined to comment.

Currently, most banks either do not charge royalty or get paid a fixed amount, which is set to be challenged by the taxman, said people with knowledge of the matter.

Issue Raised Earlier

“You have supplied services of brand name, logo and tagline to your related persons, for which no consideration was charged and no invoices were issued,” according to a February letter by the tax department to one of the large lenders. ET has seen the missive.

The GST cost could run into thousands of crores every year for large banks, they said.

A transaction between related parties, a company and its subsidiary, is liable even if there is no consideration paid under GST rules. Additionally, the tax department is said to be arguing that there is a ‘supply’ taking place between the custodians of the brand – the bank – and its related party, or its subsidiaries including mutual fund houses. As per GST law, ‘supply of brand’ is deemed to have taken place from the parent company to the subsidiary, which is a related party.

“This issue has been under debate for a long time under different tax laws and involves subjectivity in terms of valuation, or whether there exists an actual transfer of rights for tax levy,” said Abhishek Jain, tax partner, KPMG India.

“With the current government aiming at certainty for businesses in various contentious issues, this could also be looked to be explicitly clarified by the government with specific credence given to on-ground realities.”

The I-T department has asked another large private bank to provide audited balance sheets for 2018 to 2021, along with information about joint ventures, associated companies and total annual income of each of these. The bank charges around ₹2 crore annually from some of its subsidiaries as royalty or fees to use the brand name and logo.