The finance ministry on Friday clarified that the local subsidiary of a foreign company is liable to pay the fringe benefit tax (FBT) on shares allotted to Indian employees. Even if such securities are allotted by foreign holding company to Indian employees outside the country, they come under FBT purview.“Since the shares are alloted or transferred to employees of the Indian subsidiary, by virtue of their employment with the subsidiary company, the liability to pay fringe benefit tax on such shares vests upon the Indian subsidiary and not on the foreign company,” an explanatory circular issued by finance minister P Chidambaram said here.The Indian subsidiary would have to pay FBT even if the Indian employees are allotted or transferred shares by foreign holding company when they are outside India, the circular explained further.The circular further said a foreign company is liable to pay FBT in respect of shares allotted or transferred to its employee who is deputed to work in India in the year of such allotment. However, in such cases only a proportionate amount of the value of fringe benefit will be liable to FBT. Further, employer will be liable to pay FBT in India irrespective of whether employees have been taxed in different countries or not. An employer cannot claim any credit in India against its FBT liability for taxes paid by employees in other countries, the circular said. It further said if the shares alloted to Indian employees are not listed in a recognised stock exchange in India, they will be treated as unlisted. Accordingly, such shares will have to be valued by merchant bankers registered with market regulator Sebi.
