Mahindra Group Companies Affected by ‘Brand’ Tax

Mahindra & Mahindra (M&M), according to the recent resorts, has been issued a show cause notice by the Goods and Services Tax (GST) department. The notice, which covers the period from 2017 to 2023, questions why M&M should not pay GST for allowing its group companies to use the ‘Mahindra’ brand name and logo. 

Tax Dispute & Corporate Reactions

The GST department’s notice suggests that M&M should be liable for GST on the service provided by permitting its subsidiaries and associates to use the flagship brand which has led to debates among tax professionals and corporate circles, with many viewing the demand as unprecedented. A key concern raised is the challenge in ascribing a value to a brand and determining the appropriate fee that group entities in various industries should pay.

Financial Implications of GST on Brand Usage

The GST law requires taxes to be applied to ‘related party transactions’ even in the absence of financial consideration. In practical terms, if the brand usage fee were set at Rs.10 crore, the applicable GST at 18% would amount to Rs.1.8 crore. This would mean the parent company collects Rs.11.8 crore from Mahindra group entities and pays Rs.1.8 crore to the government.

Industry Concerns & Impact 

This notice follows similar actions taken by GST authorities against real estate developers in Mumbai for allowing their subsidiaries and joint ventures to use their brand names. Unlike corporate guarantees taxed at 18% on 1% of the total guarantee amount, there are no clear guidelines for taxing brand usage fees. If the GST department maintains its stance, other diversified business groups may face similar tax demands.

Conclusion: In conclusion, the notice to M&M could have a major impact on the company’s reputation, setting a precedent and raising concerns about the GST department’s expanding interpretation of tax laws.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.