CBIC askes DGGI to follow ‘bottom-up’ approach for MNC Investigations, says not to summon CEOs/CFOs at First Instance

Experts highlight adverse effects of DGGI officials directly interrogating CEOs and CFOs, including disruptions to operations
CBIC - DGGI - MNC Investigations summon CEOs - CFOs - First Instance - taxscan

The Central Board of Indirect Tax and Customs ( CBIC ) has issued directions to officials at the Directorate General of Goods and Services Tax Intelligence ( DGGI ), emphasizing a “bottom-up” approach in investigating the tax liabilities of multinational companies ( MNCs ).

In recently released guidelines, the CBIC instructed field officers to initially engage with the “authorized personnel” within an MNC, responsible for ensuring tax compliance, rather than immediately summoning the company’s CEO, CFO, or directors.

According to a senior official, who spoke anonymously, this move aims to address concerns raised by several MNCs regarding the challenges faced by top management when dealing with DGGI officials during tax investigations.

Frequently, during Goods and Services Tax ( GST ) inquiries, CEOs and Directors are required to be physically present, which can be challenging due to their busy schedules. As a result, MNCs often designate internal staff or external advisors to handle these investigations. Senior management typically intervenes only in cases where comprehensive explanations are necessary or when the tax department discovers significant violations supported by evidence.

Instances have been reported where GST authorities have interrogated senior executives of MNCs, notably concerning secondment charges. This issue pertains to the GST applicability on expenses related to expatriate employees serving Indian subsidiaries of foreign companies. The CBIC previously instructed GST authorities to adopt a more nuanced approach when assessing the tax liability of Indian subsidiaries regarding secondment charges.

Stakeholders and Key Managerial Personnel have highlighted the adverse effects of DGGI officials directly interrogating CEOs and CFOs, including disruptions to operations, increased legal and compliance burdens, and diminished investor confidence.

Despite previous guidance from the CBIC to avoid summoning senior management unless necessary, there hasn’t been a significant change in the behavior of field officers from the perspective of company management.

The new guidelines are expected to streamline the involvement of top management, as authorized personnel will be better equipped to address DGGI inquiries efficiently. Additionally, stakeholders advocate for conducting investigations through DGGI units closer to the assessee’s registered office to mitigate logistical challenges faced by senior executives.

Considering the current trend towards hybrid working models, experts suggest exploring online methods for recording statements, which would enhance the ease of conducting business.

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