Everything business asset or liability has an assigned value and hence, for every business transaction concerning such property, including intellectual property, one is required to pay tax. The tax regulating authorities in the Country are contemplating to levy a GST of 18% on the notional valuation of brands owned by Companies and commonly used by all their subsidiaries. Previously, banks allowed subsidiaries to use their logos and trademarks for free. Trademarks and logos held by parent companies when used by subsidiaries may not be exempted from the scope of GST in the near future. The tax department has now sought to charge a tax of 18% on the deemed value of such transactions.
Where the subsidiaries are using the brands for free, an exact valuation of the trademarks, brands and logos is required to be calculated so that the amount of fees to be paid by the subsidiaries to the parent company for their use can be determined and a GST of 18% can be levied thereon. In cases where the subsidiaries are already paying a fee to the parent company, the tax department shall ascertain if such fees is as per industry standards and that the transactions are at arm's length.
The trademark, logo, brands for some companies lies with the parent company, for others it lies with the holding company. Some subsidiaries are such that the trademark or logo does not reside in India but in companies outside India. It is important to point out here that different companies will have to deal with this issue in different ways.
According to various experts, under GST there is a supply of brand from the parent company to its subsidiaries which are related parties. It is because of the absence of regulations, which dealt with free supply of services between related parties, in the erstwhile tax regime that this transaction never gained attention.
Compiled by: Adv. Sachi Kapoor | Concept & Edited by: Dr. Mohan Dewan
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