Valuation of Corporate Guarantee still unresolved?

The recent changes in the valuation mechanism for corporate guarantees can serve as a boost for all pending writs before various High Courts. The principle here is straightforward: ‘NO VALUATION MECHANISM, NO TAX

The 1% value that was previously notified with respect to the guarantee offered by the holding company has now been limited to cross-border cases only, leaving domestic valuation open.

However, there is still confusion regarding the revised valuation. It provides a 1% value based on the amount of guarantee offered per annum. The intention seems to be the actual value of guarantee utilized per annum, rather than the maximum amount of guarantee that can be invoked.

A potential dispute may arise when the revenue or the taxpayer decides whether to or not to adopt the 1% valuation (where there is an Input Tax Credit leakage) in the case of local guarantees as well.

Considering these issues, I personally think that a complete overhaul of the provisions related to corporate guarantee valuation is necessary.

Let’s see….