CBIC Adopts New Approach to GST Investigations for MNCs

Introduction:

The Central Board of Indirect Tax and Customs (CBIC) has introduced a novel approach to investigating the tax liabilities of multinational corporations (MNCs) through the Directorate General of Goods and Services Tax Intelligence (DGGI). This initiative aims to address challenges faced by senior management during tax inquiries and streamline the process for enhanced efficiency.

Challenges Faced by Senior Management:

MNCs have voiced concerns over the difficulties encountered by senior executives when summoned by DGGI officials for tax investigations. The demanding schedules of CEOs and CFOs often make it impractical for them to personally attend these summons, leading to operational disruptions and legal complexities.

Taxation of Secondment Charges:

One particular issue that has garnered attention is the taxation of secondment charges, especially concerning expatriates providing services to subsidiaries. The CBIC’s directive to GST authorities to adopt a nuanced approach in assessing tax liabilities related to secondment charges reflects a proactive stance towards addressing industry concerns.

Impact on Company Operations:

Direct questioning of top executives by DGGI officials has been criticized for its adverse effects on company operations. This practice not only disrupts daily activities but also adds to the compliance burden, thereby impacting investor confidence and hindering business continuity.

CBIC’s Directive:

Despite previous directives from the CBIC to limit summoning of senior management unless clear indications of revenue loss exist, little improvement has been observed in the operational conduct of field officers. The new approach seeks to alleviate the burden on top management and streamline the investigation process.

Alleviating the Burden on Top Management:

The implementation of a “bottom-up” approach in tax investigations is expected to relieve top executives of the obligation to personally attend summons. Instead, authorized personnel responsible for tax matters will engage with DGGI officials, providing targeted responses to inquiries and minimizing disruption to business operations.

Recommendations by Experts:

Experts recommend conducting investigations through DGGI units closer to the assessee’s registered office to minimize operational disruptions for top management. Additionally, considering the growing trend towards hybrid work models, exploring options for online recording of statements could further enhance ease of doing business and streamline the investigation process for both MNCs and tax authorities.