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Esop given by the holding company(us) to the employees of subsidiary in india

CA. Kasi Reddy Nallappa Reddy (Chartered Accountant) (153 Points)

06 November 2018

Holding company(US) has issued shares to the employees of subsidiary company in india, the same expenses has been reimbursed by the subsidiary company to the holding company. The ESOP amount is included in the employees income and apllicable taxes has been taken care. Now the query is reimbursement of expenses is liable to taxes in india.

Thanks in advance

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4 Replies

Nitesh bind (Student CA Final ) (12692 Points)
Replied 06 November 2018

I think the question itself is Vague and more elaboration is needed on question.

A B Kundu (Professional) (1422 Points)
Replied 07 November 2018

Why are you telling this payment as 'Reimbursement'?

What I understood is -

Holding Company ==> issues its own shares at discount to the employees of its Subsy. Company

==> for which Holding Company would recognise Employee Compensation Expense as well as Liability in its books.

So, the Subsy Company is not coming in this transaction at all but you are telling that it has borne the share issue expenses on behalf of its Parent Company. Share issue expenses are Capital in Nature hence not allowed as per IT Act, but here, I guess, it can't be treated as "Share Issue Exp" as the share capital of the Subsy Company is not increasing due to this transaction.

Rather it can be deduced that the Holding Company giving some intangible benefit to its Subsy by issuing ESOPs to Subsy's Employees so that the Subsy can utilise the existing experienced workforce for long time and the Subsy is paying its parent for the same.

Accordingly, I think the payment would be allowed.

This is totally my interpretation. Other experts' comments are highly appreciable.