The back offices of several multinational companies present in India are being denied refund of taxes paid by them for goods and services used in the course of their business, with tax authorities refusing to accept their supplies to overseas parents as exports, said industry executives.

Taxes for goods and services used by exporters are refunded as a matter of policy to keep exports competitive in global markets but the denial of tax refunds are based on the premise that supplies to an entity’s global parent do not amount to exports.

Several MNCs with operations in Gurugram, Haryana, are facing this, said an industry executive, who spoke on condition of anonymity.

Tax experts said unless the issue is resolved by way of a clarification, more MNC arms present in cities like Bangalore, Pune and Hyderabad could be hit. Some large refund claims have been rejected in the case of Gurugram-based entities and the issue has been raised in the case of other cities, said a second industry executive, who also spoke on condition of anonymity. Industry bodies have taken up the matter with tax officials, said the official.

Experts also said the denial of tax refunds to MNCs by state authorities may be the result of inexperience in handling taxation of services, which in the pre-GST era was handled exclusively by the central government.

“The fact that a wholly-owned subsidiary of a company and its parent are separate legal entities is a position settled in the service tax regime needs to be clarified upfront to avoid piling up of litigation involving huge amounts," said R Muralidharan, senior director, Deloitte India.

Although refunds are to come from central and state governments separately to an exporter, claims are processed by one official, which results in approval or denial of a claim.

Experts expect that a clarification would resolve the issue in the case of MNC subsidiaries incorporated in India and making supplies to their global parent, although no relief is likely in the case of unincorporated local arms of MNCs, which are treated in law as part of the foreign establishment.

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