Transcript Slide 1

Baroda Branch of WIRC of ICAI
Place of Provision of Service Rules, 2012
27 June 2014
Location
Destination
Performance
CA Jigar Parikh
Partner
K. G. Patel & Co.
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Chartered Accountants
Contents
Background
Frame work
PoPS Rules
Discussion
Way forward
2
Parameters – For determining jurisdiction of provision of service
Export / Import Rules
Place of Provision of Service
Location of Service Recipient
Location of Service Recipient
Place of Performance
Place of Performance
Location of Immovable Property
Location of Immovable Property
Location of Events
Multi-location Performance
Location of Service provider and Recipient
Specified Services
Transportation of Goods
Passenger Transportation
On Board a Conveyance
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SNAPSHOT
General Rule
Specific Rules
• Performance based services
• Services relating to
• B2B
immovable property
transactions:
• Services relating to event
Location of
• Banking, online,
recipient
intermediary, transport hiring
• B2C
(up to 1 month) services
transactions:
• Goods transportation
Location of
services
provider
• Passenger transportation
services
• Services provided on board
of conveyance
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Other aspects
• Services provided at
more than one
location
• Services provided in
non-taxable territory
and service provider
and recipient
located in taxable
territory
• Services falling
under more than
one rule
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Contents
Background
Frame work
PoPS Rules
Discussion
Way forward
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Frame work - Location of service receiver and service provider
Need of having this Rule:
Service – activity carried out for a consideration in a taxable territory - A shift from transaction
based taxation to activity based taxation
 Under section 66C(1) in exercise of powers the Central government has framed ‘Place of
Provision of Service Rules,2012’
The place of provision of service rules, 2012 come into force under notification no.28/2012S.T. Dated,20-6-2012.
Relevance of the Rules:
• To determine the place where a service shall be deemed to be provided so as to ascertain the
taxing jurisdiction for a service
• If a service does not fall in taxing jurisdiction, service is tax free
• A Step towards GST
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Frame work - Location of service receiver and service provider
A. If the service provider/receiver has obtained only one registration, may be centralized (in case
of multiple places) or otherwise (having only one place) - the premises for which such
registration is taken is the location
B. In other cases i.e. either no registration is taken or multiple registration is taken the location of
service provider/receiver is identified sequentially as follows:
a. If services are provided from Business Establishment (place where management and control
exist) – Place of such business establishment is the location
b. If services are not so provided but from other establishment (fixed establishments i.e. which
has the permanent presence of human and technical resources to provide/ receive a service) –
Place of such fixed establishment is the location
a. If the services are provided from / received by more than one locations – the establishment
most directly concerned with the provision of service / use of the service is the location
b. In the absence of any places mentioned above – usual place of residence is the location.
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Contents
Background
Frame work
PoPS Rules
Discussion
Way forward
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Rule 3 - Location of Service Recipient
• Provides that service shall deemed to be provided where the service recipient is located
• In case, if location of service recipient is not ascertainable in ordinary course of business:
−
Service shall deemed to be provided where the service provider is located
• Applicability – default rule
Illustrative list of services covered under Rule 3 (except where both service receiver and
provider are located in taxable territory)
Sr. No
Description of Service
1
Consultancy Service
2
Transaction of back office processing services
3
Development of Information technology Software
4
Service of Marketing / sales promotion of goods
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Rule 3 - Location of Service Recipient
Meaning of Service Recipient
A
G
Provision of
service
Payment in
FCY
India
Contractual
agreement
Outside
India
O
Service recipient – Contractual (O) or beneficial (A)?
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Rule 3 - Location of Service Recipient
Meaning of Service Recipient
A
G (BO)
Provision of
service
Payment of
Invoice
India
Outside
India
Definition of
Service
PoPS Rules
HO and BO are
treated as distinct
person
Establishment
of same
person –
establishment
directly related
treated as
recipient
O (HO)
Clarification on harmonious interpretation of both these provisions
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Rule 4 –Place of Performance
Place of provision of service – location of performance of service
Applicable when Service is provided
Examples
In respect to goods that are required to be made
physically available by service recipient to service
provider in order to provide the service (*)
•
•
•
•
•
Repair and Reconditioning of goods
Storage and Warehousing,
Cargo Handling, Courier,
Technical Testing/Inspection / Analysis
Authorised Service Station
In conjunction with supply of goods under
another contract by service provider
•
•
Annual Maintenance Contract
Erection and Commissioning Service
Entirely or predominantly, in ordinary course of
business, where physical presence of individual is
required in order to provide the service
•
•
•
Fitness Services
Photography Service,
Class room teaching, internet café
(*) Where service is provided in respect to goods from remote location by way of electronic means,
place of provision shall be location where goods are situated at the time of such provision
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Rule 4 –Place of Performance
Goods provided is merely an input
Seeds
A
Performs
research
Provides research
report and
receives payment
India
Made
available by B
Outside
India
B
Relevant Rule - Rule 3 or Rule 4?
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Rule 4 –Place of Performance
Goods made available by a person other than the contractual recipient
Service provider
India
Provides
maintenance
free of charge
Customer
Equipment
purchased with 1
year free
maintenance
Payment for
services
Outside
India
Equipment
supplier
Relevant Rule - Rule 3 or Rule 4?
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Rule 5 - Location of Immovable Property
Place of provision of service – location of immovable property
Provides that service provided directly in relation to an immovable property shall deemed to be
provided where such immovable property is located or intended to be located
Land related Services
Non-land related Services
Renting of immovable property,
Repair and maintenance of machinery which is
not permanently installed / attached to earth
Services of real estate agents, auctioneers,
architects, engineers relating to land, buildings or
civil engineering works
Advice or information relating to land prices or
property markets
Supply of hotel accommodation, guest house, club
or warehouse space
Land or Real Estate Feasibility studies carried
out for the purpose of Investment
Services supplied in course of construction,
reconstruction, alteration, demolition, repair or
maintenance of building
Filing tax return for business in respect of
rental income earned from commercial
property
Legal services with respect to applications for
planning permission
Legal consultancy services relating capital gain
tax on sale of immovable property
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Rule 5 – Location of Immovable Property
Guidance note provides criteria for determining service provided directly in relation to Immovable
Property
• Service is physically performed or agreed to be performed on specific immovable property or
property to come into existence
• Immovable property is the direct object of the service in the sense that the service enhance the value
of property or affects the nature of the property
• Purpose of service is to:
−
−
Transfer or conveyance of the property or propose to transfer or conveyance the property
−
Determination of title of the property
Does not cover services having indirect or incidental connection between service provided in relation
to immovable property and the underlying immovable property
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Rule 5 – Location of Immovable Property
Oil Extraction
platform
L&T
Provides designing/
engineering services and
receives consideration in
Forex
India
Outside
India
Contractual arrangement
to provide designing/
engineering services
NY Inc.
Relevant Rule - Rule 3 or Rule 4?
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Rule 6 – Location of occurrence of Event
Place of provision of service – location of event
Coverage of the Rule:
Services:
- in relation to admission;
- by way of organising cultural, artistic, sporting, scientific, educational, or entertainment event, or a
celebration, conference, fair, exhibition, or similar event;
- ancillary to admission of an event
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Rule 6 - Location of Event
Prospective
Students
Road Show
Plans and
organise
show
Attend
India
Pay for planning and
organizing
Pay participation fees
Outside
India
Organisor
Management School
Description
Old Regime
New Regime
Payment to organizer
Taxable (Performance based)
Taxable (location based)
Participation fees
Non – taxable
Taxable
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Rule 7 – Multi - location performance
• Provides that service (stated in Rule 4, 5 or 6) provided from multiple locations, including location in
taxable territory, shall deemed to provided in the taxable territory where the greatest proportion of
service is provided.
Old
Regime
New
Regime
Export
Taxable
Chennai (12%)
Mumbai (23%)
Singapore (55%)
Delhi (10%)
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Rule 8 – Location of receiver and provider
Place of provision of service – location of Service Provider
Covers situations where place of provision of service outside the taxable territory, however service
provider and recipient located in taxable territory – PoPS is locatio of service recipient
A
B
Contractual
arrangement
Old
Regime
New
Regime
Not
taxable
Taxable
India
Outside
India
Setting up
laboratory of B
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Rule 9 - Location for specified services
Place of provision of service – location of Service Provider
Following are the specified services where the place of provision is the location of the service
provider:i) Services provided by a banking company, or a financial company, or a non-banking financial
company to account holders;
ii) Online information and database access or retrieval services;
iii) Intermediary services;
iv) Service consisting of hiring of means of transport, up to a period of one month.
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Rule 9 - Location for specified services
Intermediary Services
• A broker, an agent or any other person who arranges or facilitates provision of services between
two or more persons
• Involved with two or more supplies at any one time:
- supply between the principal and the third party
- supply of his own service (agency service) to his principal
Illustration of
services
Tour Operator
Travel Agent
Stock Broker
Commission Agent ?
For goods
Indian Agents providing service to overseas
money transfer service provider
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For service
.
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Rule 9 – Intermediary services
Service of Sub - contractor
ABC
Sub contracts marketing
and facilitation
India
Markets and
facilitates
insurance services
Outside
India
XYZ
Customer
Engages to market
and facilitate
insurance service
Insurance Company
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Rule 9 – Online information & Database access or retrieval service
ABC
India
Old
Regime
New
Regime
Taxable
under
reverse
charge
Not
Taxable
Payment of
subscription charges
Outside
India
Money Value inc.
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Rule 10 – Transportation of goods
• Provides that place of provision of service with respect to transportation of goods shall be the place
of destination of the goods
• Said rule not applicable in case of transport of goods by way of mail or courier (covered under Rule 4)
• Place of provision of service for Goods Transport Agency shall be the location of person liable to pay
tax
Transport of goods by
vessel
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Rule 10 – Transportation of goods
• Service of Freight Forwarder
- Clearance of goods; service of loading / unloading of goods
- includes agency charges and other charges (Bundled services) – Taxable entirely
- What if contract is separated in to (a) outside India services (b) ocean freight & (c) services in India
Transport of goods by
vessel (Ocean Freight)
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Rule 10 – Transportation of goods
Place of provision of service – Destination of goods*
*In case of GTA – place of provision of service is location of person liable to make
payment of freight;
*Destination of goods other then mail and courier
S. No.
Location of
service
provider
Location of
Destination of
service receiver goods
– person liable
to pay freight
PoPS
1
J&K
Gurgaon
Mumbai
Gurgaon
2
J&K
Delhi
J&K
Delhi
3
Delhi
Mumbai
J&K
Mumbai
4
J&K
J&K
Delhi
J & K (not
taxable)
5
Gurgaon
J&K
J&K
Gurgaon
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Rule 11 and 12
Rule 11 – Transportation of passenger
• Place of provision of service with respect to Passenger Transportation Service shall be the place
where passenger embarks on the conveyance for a continuous journey
“Continuous journey” means:
−
a journey for which a single or more than one ticket or invoice is issued at the same time,
−
either by one service provider or through one agent acting on behalf of more than one
service provider, and
−
which involves no stopover between any legs of the journey for which one or more separate
tickets or invoices are issued
Rule 12 – On Board a Conveyance
• Place of provision of service provided on Board during the course of Passenger Transport
Operation, intended to be wholly or partially consumed while on Board shall be the first
scheduled point of departure of that Conveyance for the journey
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Rule 13 and 14
Rule 13 – Power to notify description of service
• Central Government has the power to notify the description of service or circumstance in which the
place of provision shall be the effective use and enjoyment of a service
• The said Rule provide powers in order to prevent double taxation or non taxation of provision of
service
Rule 14 – Order of Application of Rules
• Where more than one Rule is applicable for determining the place of provision of service, the same
shall be determined in accordance with the Rule that occur later among the Rules that merit equal
consideration
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Contents
Background
Frame work
PoPS Rules
Discussion
Way forward
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Queries and discussion
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Discussion
Place of Provision of Service Rules & SEZ
•Location of SEZ well with in ‘taxable territory’ and hence services provided are taxable
(Shobha Developers – 276 ELT 214)
•Exemption provided by Notification 40/2012 – ST; Services wholly consumed in SEZ for
authorized operations of SEZ
•Taxability on sub-contractor – intermediary (Exemption only if received by SEZ unit /
SEZ developer)
Impact on Cenvat credit – Whether reversal required – Rule 6 of CCR, 2004?
Rule 6(6A) as amended w.e.f. 1-7-2012 specifically provides that provisions of rules 6(1)
to rule 6(4) shall not apply to;
(a) services provided to SEZ unit or developer for their authorised operations, without
payment of service tax or
(b) export of service.
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Discussion
• Whether service tax liability is attracted when place of provision of service as determined by
applying these rules is outside India?
• An Indian author has allowed an International Publisher in Germany to publish a book against
some Royalty say 10% of Published Price against sale of Books in Foreign countries except India
and the royalty in earned in Foreign currency.
Does it comes under the perview of service tax ? If so, whether it can be treated as export of
service. (Intellectual property services)
• A hotel is tying up a worldwide marketing group (not having any permanent establishment in
India) who are charging one time fee with the nomenclature of joining fee & Membership Fee
and also some recurring charges in the name of maintenance / Quality Assurance Fee &
marketing charges.
• Whether Service Tax is applicable on the same under reverse mechanism? (Promotion and
marketing Service)
• We are the resident Co. of Nepal. Indian Co. provided us services for Repairing of Machinery at
our Plant. Payment will be sent in Indian Rupees. (Repairs and Maintenance Services)
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Discussion
• Africa based Company is arranging series of seminars to ‘save tigers’ across world under contract
with Animal Lovers Limited, Jaipur at various locations namely Jamaica, Gir, London, Singapore.
What will be the place of provision?
• Indian company is procuring orders for supply of goods / machines from other Indian Companies
for a foreign Company and earning commission from the foreign company in foreign currency.
Would service tax be applicable on the commission earned by the Indian Company? (Business
Auxiliary Service)
• When the Event management company of Malaysia is contracted by Red Chilli Entertainment to
organize film fare awards at Pataya . what is place of provision of service?
• Whether banking services by SBI to a Bank of America bank is covered in Rule 9? (Lead banker or
similar)
• Whether taxation services, international advisory assignment services provided online to US
clients by an Indian tax consultancy firm is covered as online information and data base access
and retrieval services in Rule 9 of POP Rules?
• Whether the design services to US company by Indian firm in relation to construction of a
complex in Bangalore is liable to service tax in India?
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Discussion
• What is place of provision of service in respect of coaching by Bangalore coaching academy to
US company employees provided in USA?
• What is place of provision of service when movie on demand is provided on board a flight from
Mumbai to USA?
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Way Forward
Review business transactions
 undertaken outside India
 with establishments located outside India
 in the State of J&K
 with HO or BO
to determine place of provision
Make necessary changes in contract and other documentation
Identify points for clarification/ representation
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Pre-Budget Memorandum by ICAI – Interim Budget
Sr. No.
Particular
Suggestion
1
Intermediary
Services under Place
of provision of
Service RulesClarification will
assist better
Compliances
It is suggested that the general rule of location of
recipient of service be applied to intermediaries also
and the exception be done away with.
It is suggested that the location of recipient of
service in international trade be treated as the place
of provision of service.
Clarification be issued to provide that the recipient
of the service would be the person making payment
for the service when the agent/broker brings
together two parties of different taxable territories.
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Pre-Budget Memorandum by ICAI – Interim Budget
Sr.
No.
Particular
Suggestion
2
Certification under
Place of Provision
Rules, 2012 in line
with income tax –
overseas payments
It is suggested that a declaration and certification by a
Chartered Accountant with respect to liability of
service tax on payment made outside India be
prescribed in service tax law in line with income-tax
provisions. This could be verified by the bankers while
effecting payment to overseas service provider.
The introduction of such a mechanism will safeguard
the interest of revenue as also would simplify the
procedural compliance for the assessee with regard
to Place of Provision Rules, 2012 which is generally
quite complex and may be missed out of ignorance or
oversight.
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THANK YOU
CA Jigar Parikh
E-mail – [email protected]
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although the endeavour to provide accurate and timely
information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without
appropriate professional advice after a thorough examination of the particular situation.
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Export of Service
Whether if place of provision of service is outside India as per Place of provision of Services Rules,
is it considered as export of services?
(i)
the provider of service is located in the taxable territory;
(ii)
the recipient of service is located outside India;
(iii) the service is not a service specified in the section 66D of the Act (Negative List);
(iv) the place of provision of the service is outside India;
(v)
the payment for such service has been received by the provider of service in convertible
foreign exchange; and
(vi) the provider of service and recipient of service are not merely establishment of a distinct
person in accordance with item (b) of Explanation 2 of clause (44) of section 65B of the Act.
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