A foreign company cannot shrug off its tax liabilities on benefits provided to employees in its liaison office in India on pretext that its income does not arise from the country, clarified a recent ruling by Authority for Advance Ruling.
"There is no doubt that a foreign entity not earning any income in India but having employees in this country is liable to Fringe Benefit Tax, if it pays fringe benefits to those employees," AAR said giving ruling in case of Singapore-based Singapore Tourism Board.
The ruling also pointed out that FBT would apply to liaison offices of foreign companies in India if the liaison offices had employees based in India.
The Singapore-based tourism company had sought the authority's ruling whether it was liable to pay FBT on the benefits provided to the company's employees in the liaison offices in
India.
The Singapore company has employees working in liaison offices in Delhi, Mumbai and Chennai. The expenses relating to the Indian offices are reimbursed from Singapore office.
However, the company had said that it was not liable to pay FBT in India as 'no income accrues or arises to the applicant in India'.
Fringe benefit tax is a tax to be paid by the employer on the added facilities provided to its employer at the rate of 30 per cent. The tax has to be paid in addition to the income tax on the earnings of the company.
The ruling by the Authority for Advance Ruling is significant as many foreign companies have their liaison offices in India.
Though the AAR ruling is a binding on the applicant company, it also sets a precedence for other foreign firms undertaking similar business activities in India.
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