18 percent GST may be imposed on corporate guarantee given to the company for bank loan.
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New Delhi (Uttam Hindu News): The GST Council may consider the possibility of imposing 18 per cent tax on corporate guarantees given by parent companies to their subsidiaries for obtaining loans from banks.
According to reliable sources, this issue was raised by the Law Committee of the GST Council during various meetings held recently. The Committee is of the view that corporate guarantee is a kind of supply which falls in the 18 per cent GST bracket. Therefore this should also apply to corporate guarantees.
The Law Committee has recommended adoption of valuation rules in line with the Safe Harbor Rule under the Income Tax Act for providing corporate guarantees. Under these rules, in eligible international transactions, the minimum allowable commission/fee is one percent of the guarantee amount.
Therefore, it was proposed that there is a need to consider adopting the same in case of related party transactions under GST. The final decision will be taken in the GST Council meeting on Saturday. Corporate guarantee is an arrangement between group companies whereby a parent company agrees to act as a guarantor for a subsidiary company when securing credit facilities from a bank.
These arrangements are executed either without any consideration or with a nominal commission on the loan amount. The GST Council may also consider the issue of whether personal guarantees or guarantees given to promoters/directors of a company should also be subject to 18 per cent GST.
In the case of personal guarantee, the Law Committee cited the Reserve Bank of India order which states that no commission, brokerage fee or any other commission may be paid directly or indirectly by the company to the director in lieu of providing personal guarantee to the bank for taking the loan. No payment can be made in kind.
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