In November 2018, the Indian tax body Authority for Advance Rulings (AAR), in its ruling on advertising firm Vserv, qualified back office services as “intermediary,” imposing a GST of 18% on the company (earlier categorized as export of services and hence exempted from GST). AAR has since started issuing preliminary notices to export services companies such as ITeS companies (or Business Process Outsourcing companies) and Global In-house Centers (GICs) of multi-national companies (MNCs) delivering back office operations.
There has been no formal statement from the tax body on the tax implications for other companies. However, if imposed, there is a potential risk to India’s cost arbitrage proposition, which would reduce investment from global companies and, in turn, impact revenue and jobs.