In cross-border secondment arrangements, it is common for the Indian entity to reimburse the overseas group entity for remuneration paid to employees seconded to India. Such reimbursement arrangements are usually structured in this manner to enable secondees to retain employment continuity and social security benefits in their home jurisdiction during the secondment period. Typically, these reimbursements are made by the Indian company on a cost-to-cost basis, without any markup. The remuneration received by the seconded employees is taxed in India in accordance with applicable domestic laws.
However, these reimbursements may give rise to significant tax implications for the overseas group entity. Depending on the specific facts of the arrangement (including contractual terms and conduct of parties), such reimbursement may expose the overseas entity to the risk of creation of a taxable presence in India (in the form of permanent establishment) or be characterized as Fees for Technical Services (“FTS”) or Fees for Included Services (“FIS”) under the applicable tax treaty. These consequences are independent of the tax treatment of the salary/remuneration received by the seconded employees in India. The central issue in any secondment arrangement is the identification of the real and economic employer of the seconded employees, that is, whether it is the overseas entity or the Indian entity that should be regarded as the employer for tax purposes. Under conventional secondment arrangements, Indian courts have generally recognized that the determination of the real employer is a question of substance and must be based on the overall relationship between the parties rather than the nomenclature used in contractual documents. (For an overview of the judicial principles governing such arrangements, click here.)
However, a recent Delhi High Court ruling in CIT v. Ernst and Young U.S. LLP1 (“Ernst and Young U.S. LLP”) has introduced additional dimensions to the existing jurisprudence on cross-border secondments. The Court held, based on the specific facts and circumstances of the case, that the cost-to-cost reimbursement of salary costs of seconded employees constituted FIS under the India-USA double taxation avoidance agreement (“India-USA tax treaty”) and was accordingly taxable in the hands of the overseas entity.
In arriving at this conclusion, the Court relied on its earlier decision in Centrica India Offshore (P.) Ltd v. CIT2 (“Centrica India Offshore”), where it had been held, based on the facts of that case, that the seconded employees remained employees of the foreign company. Following the same reasoning, the Court held that the foreign entity remained the real and economic employer, relying, inter alia, on the following key factors:
- The secondees continued to be entitled to the social security benefits provided by the foreign employer;
- During the period of secondment, the employees continued to retain their employment lien with the foreign employer unless they were permanently absorbed by the Indian entity;
- The Indian entity had no authority to terminate the services of the secondees or to initiate disciplinary or legal action against them for misconduct, fraud, willful negligence or other unlawful acts;
- The Indian entity did not possess the power to sever the employment relationship between the secondees and the foreign entity; and
- Upon completion of the secondment, the secondees resumed their employment with the foreign entity, indicating that the foreign employer retained an employment lien over them.
The Court concluded that these factors demonstrated that the secondees never ceased to be employees of the foreign entity and that the foreign employer continued to exercise “overarching control over them.”
The Court further held that the secondment arrangement satisfied the “make available” requirement under the India-USA tax treaty. It observed that the secondees had been deputed to India to imbibe the culture of the foreign group and to implement its policies, processes and standards within the Indian entity. Once these processes and standards had been transferred and internalized, the Indian employees were capable of applying them independently without requiring the continued presence of the secondees. The Court also noted that the secondees had imparted training to employees of the Indian entity. Accordingly, it concluded that there had been a transfer of technical knowledge, experience, skill or know-how, thereby satisfying the “make available” test.
The principles laid down by the Court raise important questions regarding the determination of the employer-employee relationship under both domestic tax law and tax treaties. Traditionally, Indian courts have held that the mere rendering of services, even by highly skilled personnel, does not satisfy the “make available” test unless the recipient acquires the technical knowledge or know-how in a manner that enables it to perform the functions independently in future without continued assistance from the service provider. The Delhi High Court in Ernst and Young U.S. LLP, however, inferred satisfaction of the “make available” test principally from the transfer of organizational processes, business practices and training provided by the secondees.
Notably, the Court’s approach to the “make available” requirement is at variance with the earlier jurisprudence on the subject. For example, in another decision3 concerning permanent establishment risks arising from secondment arrangements, a different Bench of the Delhi High Court held that the secondment of technically qualified or experienced personnel is not uncommon in today’s global business environment. The Court further held that the relevant enquiry is whether the deployment of such employees is in furtherance of the business of their formal employer or whether their services are intended to be utilized for the business of the host enterprise.
Similarly, the Karnataka High Court, in a recent decision4 on a similar issue, observed that secondment arrangements are common in a “shrunk globe” and that all indicators of an employer-employee relationship cannot be expected to be fulfilled in the realm of international business of this kind.
These decisions recognize the commercial realities of multinationals, where limited employment rights may continue with the overseas employer for regulatory, immigration or social security reasons without necessarily affecting the economic analysis of the employer-employee relationship.
Interestingly, only a few weeks before the Delhi High Court delivered its decision in Ernst and Young U.S. LLP, the Delhi Bench of the Income-tax Appellate Tribunal (“ITAT”), which falls within the territorial jurisdiction of the same High Court, rendered its decision in Honda R&D Company Limited5 on a similar issue concerning the taxability of reimbursement of salary costs under a secondment arrangement. In that case as well, the tax authorities sought to characterize the cost-to-cost reimbursement of salary paid by the Indian entity to the Japanese company as FTS under the India-Japan tax treaty. After examining the secondment agreement together with the employment contract executed between the Indian host company and the secondees, the ITAT held that the existence of an employer-employee relationship between the Indian company and the secondees during the period of secondment was established beyond doubt.
The ITAT further distinguished the Delhi High Court’s decision in Centrica India Offshore by observing that, unlike in Centrica, the secondees in this case were specifically taken into the employment of the Indian company, which assumed the primary obligation to pay their salary and other employment-related costs. The ITAT, therefore, held that the reimbursement of salary costs, being made on a cost-to-cost basis in respect of employees of the Indian company, could not be characterized as FTS.
Conclusion
Considering the continuous scrutiny of secondment arrangements and the evolving judicial landscape, companies should proactively review the structure and implementation of their cross-border secondment arrangements. Particular attention should be paid to ensuring that the secondment agreement, employment agreement and, where applicable, the master services agreement clearly delineate the roles and responsibilities of the secondees, the extent of control and supervision exercised by each entity and other key employment terms. Equally important would be the need to maintain robust contemporaneous documentation, such as timesheets, reporting structures and email correspondence to substantiate the actual conduct of the parties during the secondment.
1 ITA 423/2025, dated June 18, 2026
2 [2014] 364 ITR 336 (Delhi), dated April 25, 2014
3 PCIT v. Samsung Electronics Co. Ltd, [2025] 170 taxmann.com 417 (Delhi), dated January 15, 2025
4 DCIT v. Flipkart Internet (P.) Ltd, [2025] 171 taxmann.com 693 (Karnataka), dated February 12, 2025
5 Honda R&D Company Limited v. ACIT [ITA No. 548/Del/2025], dated May 27, 2026
This insight has been authored by Sumit Bansal (Partner), Shivani Chhabra (Counsel) and Tanmay Aggarwal (Associate). They can be reached on sbansal@snrlaw.in, shivanichhabra@snrlaw.in and tanmay@snrlaw.in, respectively, for any questions. This insight is intended only as a general discussion of issues and is not intended for any solicitation of work. It should not be regarded as legal advice and no legal or business decision should be based on its content.
© 2026 S&R Associates