FBT - ESOP by a foreign co.

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CA. Ramesh P Choudhary (Expert)
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23 November 2007 The FBT provisions as enacted, use the words “any specified security or sweat equity shares allotted or transferred, directly or indirectly by employer…to its employees”.

The definition of the terms ‘specified security’ and ‘sweat equity shares’. The wording being wide, the term ‘specified security’ has become a bone of contention. In the legislation, the term specified security is defined to mean the same as under SCRA (the Securities Contract Regulation Act of 1956).

Hence, it is debatable whether you need to consider the definition of the term as under SCRA, or do we assign the meaning in the context of SCRA. For illustration, definition under SCRA could cover foreign contracts executed in foreign security.

It is pertinent to note that there is no employer-employee relationship between the foreign company and the employees of the Indian subsidiary company. If the intention is to levy FBT on the foreign company, then it would cause lot of administrative hardship, as the foreign company would have to first pay FBT on a quarterly basis, and then file an annual FBT return.

The foreign company may (justifiably) contend that it has no employer-employee relationship with the employees of the Indian company and hence, no FBT is payable.

There are foreign companies, which have branch office in India and the employees in India have ESOPs. It has been clarified that the foreign companies are also subject to FBT.

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