Indian Govt may allow McCain Foods to charge a 'Management service fee' to Indian subsidiary

The Indian government is considering a proposal to allow foreign multinationals to impose an 'annual service fee' on their Indian subsidiary for providing management services. The foreign direct investment (FDI) policy, while allowing payment of royalty, licence fee and technical know how-how fee, does not provide for payment of annual service fee by Indian subsidiaries.

If allowed, this may become another important source of income for foreign multinational companies from their Indian arms.

The issue came up in the last meeting of foreign investment promotion board (FIPB), when it took up the proposal of Canada-based potato and French fry major McCain Foods for removal of restriction on payment of service fees by McCain India, a major supplier of cut-potatoes to fast food giants like McDonalds and KFC in India.

The board deferred its decision on the proposal and referred it to the Reserve Bank of India (RBI) as it has foreign exchange implications.

McCain Canada has a management fee arrangement with group companies/ subsidiaries in order to facilitate the operations of its group companies and to cover the cost of providing general management services.