Tax authorities' demand for levying GST on brand usage by subsidiaries of a parent company or related party could lead to litigations and hit the earnings of these firms, experts said.
With the government forming a high - level committee to review the indirect tax structure, tax experts hope the issue of imposing GST on brand usage by related parties would also be addressed.
At present, a large number of companies allow their subsidiaries or a related party to freely use the brand name and logo.
Since this does not involve any payment, no GST is levied.
The GST authorities, however, want companies to charge for brand and logo usage.
The tax department wants the companies to put a value to their brands, charge related parties for the brand usage and pay 18 per cent GST.
While maintaining that tax authorities are right in demanding tax on usage of brand names and logos, experts said that there are several practical problems. They maintain that bigger companies may not have any problem in putting a value to brand usage by related parties, but smaller firms with large number of subsidiaries could face problems.
"Legally it is right but logically not.
The law says that any supply of service between related parties is taxable, " said Rajat Mohan, Senior Partner, AMRG & Associates.
Tax experts said that levy of tax on usage of brand name for a royalty has been a bone of contention between Value Added Tax and Service Tax authorities in the past as well.
As per the indirect tax law, companies are now required to assign a value wherever they allow usage of brand names, logos, etc.
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