Some Indian conglomerates and foreign banks are among those under the scanner for allowing subsidiaries or Indian entities to use brand names and logos they own for free. The indirect tax department wants these entities to put a valuation on the brand names and logos, charge fees from the subsidiary or group company and pay 18% goods and services tax (GST) on that, according to people with direct knowledge of the matter.

The conglomerates are said to include the Tata and Mahindra groups along with banks such as ICICI, HSBC and Citi. The tax department has sent written inquiry orders to some companies and issued preliminary notices to some foreign banks, said the people cited above. HSBC and Tata declined to comment. Others didn’t respond to queries.

The 18% GST levy would likely result in thousands of crores in taxation for companies and banks, said experts. However, if the subsidiary is a manufacturing unit, the cost could be offset in some way, they said.

Issue Raised Before

Tax experts said that under GST law, a transaction between related parties — a company and its subsidiary or an Indian arm and its parent overseas — is liable even if there is no consideration. This has resulted in the indirect tax department raising demands on the brands and logos that are owned by a holding company or conglomerate but used by subsidiaries and group companies without any payment.

“Companies that have allowed use of brand, product licences, logos etc. would have to determine the open-market value of these and pay GST on the same,” said Ritesh Kanodia, partner, Dhruva Advisors, a tax advisory firm. “While shelter may be taken under the ‘deemed to be open-market value’ provisions where full credit is available, the same has not yet been tested in courts.” ,