--- title: "Employee Secondment Taxation in India: Delhi High Court Reopens the Debate on Cross-Border Workforce Deployments" date: 2026-06-22 author: "Vipin Upadhyay" url: https://ksandk.com/tax/employee-secondment-taxation-india-delhi-high-court/ --- # Employee Secondment Taxation in India: Delhi High Court Reopens the Debate on Cross-Border Workforce Deployments Posted On - 22 June, 2026 • By - Vipin Upadhyay ![employee secondment taxation india - Employee - A female worker sewing in a textile factory, showcasing industrial production](https://ksandk.com/wp-content/uploads/stock-pexels-1782109217291.webp) ## Introduction Employee secondment arrangements have become an integral component of multinational business operations in India. Global Capability Centres (GCCs), technology companies, consulting firms, manufacturing groups, financial institutions and professional services organizations frequently deploy foreign employees to India to facilitate knowledge transfer, provide technical expertise, oversee business operations and support strategic initiatives. Table of Contents - [Introduction](#introduction) - [Why Employee Secondments Matter for Multinational Companies in India](#why-employee-secondments-matter-for-multinational-companies-in-india) - [Background of the Ernst & Young Secondment Case](#background-of-the-ernst-amp-young-secondment-case) - [What Did the Delhi High Court Hold?](#what-did-the-delhi-high-court-hold) - [Substance Prevails Over Contractual Labels](#substance-prevails-over-contractual-labels) - [Provision of Technical and Consultancy Services](#provision-of-technical-and-consultancy-services) - [Payments Taxable as Fees for Technical Services](#payments-taxable-as-fees-for-technical-services) - [Salary Taxation Does Not Eliminate FTS Exposure](#salary-taxation-does-not-eliminate-fts-exposure) - [Understanding the “Make Available” Test Under the India-US DTAA](#understanding-the-make-available-test-under-the-indiaus-dtaa) - [Impact on Global Capability Centres (GCCs) and Multinational Employers](#impact-on-global-capability-centres-gccs-and-multinational-employers) - [Permanent Establishment (PE) Risks Associated with Employee Secondments](#permanent-establishment-pe-risks-associated-with-employee-secondments) - [GST Implications of Cross-Border Employee Secondment Arrangements](#gst-implications-of-crossborder-employee-secondment-arrangements) - [Employee Secondment Compliance Checklist for Multinational Companies](#employee-secondment-compliance-checklist-for-multinational-companies) - [Conclusion](#conclusion) However, the tax treatment of employee secondments in India has remained one of the most heavily litigated issues under Indian tax law. Questions relating to the characterization of salary reimbursements, withholding tax obligations, Fees for Technical Services (FTS), permanent establishment (PE) exposure and GST implications continue to generate significant controversy for multinational enterprises. In a significant development, the Delhi High Court has revisited these issues in the case involving **Ernst & Young US LLP (“EY US”)**, holding that payments made by Indian EY entities to EY US in relation to seconded employees were taxable in India as Fees for Technical Services (“FTS”) under both the Income-tax Act, 1961 and the India-US Double Taxation Avoidance Agreement (“DTAA”). The ruling has potentially far-reaching implications for multinational companies operating in India, particularly those relying on cross-border employee secondment arrangements and expatriate workforce deployments. ## **Why Employee Secondments Matter for Multinational Companies in India** Cross-border employee secondments are commonly used by multinational groups to: - Establish and expand Global Capability Centres (GCCs); - Facilitate technology transfer and implementation; - Train local teams and transfer specialized knowledge; - Support management oversight and governance functions; - Deploy technical experts for project execution; - Ensure consistency in global operational standards. From a business perspective, secondments provide flexibility and facilitate international mobility of talent. From a tax perspective, however, such arrangements frequently raise questions regarding the true nature of services being provided and the appropriate tax treatment of related payments. ## **Background of the Ernst & Young Secondment Case** EY US had entered into arrangements under which employees were seconded to various EY entities in India. Under the structure: - The secondees worked in India for specified periods; - Salaries were initially paid by EY US; - Indian EY entities reimbursed EY US for salary costs; - Taxes on employment income were withheld and discharged in India in the hands of the secondees. The Income Tax Appellate Tribunal (ITAT) had previously held that these payments represented mere reimbursements of salary costs and therefore were not taxable in the hands of EY US. The Tribunal had accepted the taxpayer’s argument that the Indian entities were effectively the economic employers of the secondees and that no separate technical service was being rendered by EY US. The Delhi High Court, however, adopted a different approach and overturned the ITAT’s findings. ## **What Did the Delhi High Court Hold?** ### *Substance Prevails Over Contractual Labels* A key aspect of the judgment is the Court’s emphasis on substance over form. The Court observed that merely describing payments as “salary reimbursements” does not determine their tax treatment. Instead, the actual commercial arrangement, functions performed by the secondees and the nature of services rendered must be examined. The Court analysed the broader framework of the secondment arrangement rather than focusing solely on the mechanics of salary payments. ### *Provision of Technical and Consultancy Services* The Court found that the secondees were deployed because of their specialized skills, professional expertise and technical capabilities. According to the Court, the secondees were not merely filling workforce requirements but were contributing technical knowledge, expertise and advisory support to the Indian entities. Consequently, the arrangement was viewed as involving the provision of technical and consultancy services by EY US. ### *Payments Taxable as Fees for Technical Services* Applying Article 12 of the India-US DTAA, the Court concluded that the services rendered satisfied the “make available” requirement. As a result, payments received by EY US from the Indian entities were held to constitute taxable Fees for Technical Services (FTS), notwithstanding their characterization as salary reimbursements. ### *Salary Taxation Does Not Eliminate FTS Exposure* The Court also clarified that the fact that salary income was already taxed in India in the hands of the secondees does not automatically preclude taxation of payments received by the foreign entity. This aspect of the judgment is likely to have significant implications for multinational employers who have historically relied on salary taxation as evidence that no separate FTS liability should arise. ## **Understanding the “Make Available” Test Under the India-US DTAA** One of the most important aspects of the ruling relates to the application of the “make available” test. Under the India-US DTAA, technical or consultancy services may qualify as taxable Fees for Included Services (FIS) only where the recipient is enabled to apply the technical knowledge, skill, know-how or processes independently in the future. The Delhi High Court’s analysis suggests that where secondees transfer specialized expertise, train personnel or build enduring capabilities within the Indian entity, the “make available” requirement may be satisfied. This interpretation could significantly influence future disputes involving employee secondment taxation in India. ## **Impact on Global Capability Centres (GCCs) and Multinational Employers** The judgment is particularly relevant for Global Capability Centres (GCCs), which have become a central component of India’s investment and employment landscape. Many GCCs routinely rely upon expatriate employees and foreign specialists to establish operations, implement global processes and support technology integration. Following the Delhi High Court’s ruling, multinational groups may need to reassess: - Existing secondment arrangements; - Salary recharge structures; - Tax withholding positions; - Permanent establishment risks; - Transfer pricing policies; and - GST implications. Organizations operating large-scale cross-border workforce deployment models may face increased scrutiny from tax authorities. ## **Permanent Establishment (PE) Risks Associated with Employee Secondments** Apart from FTS exposure, multinational companies should also consider whether secondment arrangements could create permanent establishment risks in India. Depending on the facts, tax authorities may examine whether: - Foreign personnel are effectively conducting business activities in India; - A Service PE has been constituted; - A Fixed Place PE exists; or - The activities of secondees create profit attribution exposure. The judgment reinforces the importance of evaluating PE risks alongside the tax treatment of salary reimbursements and service fees. ## **GST Implications of Cross-Border Employee Secondment Arrangements** Although the EY case was decided under direct tax law, the Court’s reasoning may influence ongoing GST disputes involving secondment arrangements. The GST treatment of employee secondments remains an evolving area, particularly following the Supreme Court’s decision in Northern Operating Systems and subsequent High Court rulings. Tax authorities may seek to argue that certain secondment structures represent supplies of manpower or technical services rather than pure employer-employee relationships. Accordingly, businesses should evaluate both direct tax and indirect tax implications when designing or reviewing secondment frameworks. ## **Employee Secondment Compliance Checklist for Multinational Companies** Given the evolving judicial landscape, multinational companies should consider undertaking a comprehensive review of existing secondment structures. Key areas of focus include: ### Documentation Review - Employee secondment agreements; - Employment contracts; - Inter-company service agreements; - Salary recharge mechanisms; - Reporting and supervision structures. ### Tax Analysis - Applicability of FTS provisions; - DTAA protection and treaty benefits; - Section 195 withholding obligations; - Tax residency considerations. ### Permanent Establishment Assessment - Service PE exposure; - Fixed Place PE risks; - Profit attribution implications. ### Transfer Pricing Review - Arm’s length pricing of secondment arrangements; - Cost recharge methodologies; - Mark-up versus pure reimbursement structures. ### GST Assessment - Reverse charge implications; - Historical exposure reviews; - Characterization of services versus employment relationships. ## **Conclusion** The Delhi High Court’s decision in the Ernst & Young case marks an important development in the taxation of employee secondments in India. The ruling underscores that tax authorities and courts are increasingly focused on the economic substance of cross-border workforce deployment arrangements rather than their contractual labels. For multinational companies, GCCs and foreign employers operating in India, the judgment serves as a timely reminder that employee secondment arrangements must be carefully structured, documented and reviewed from a tax, transfer pricing, permanent establishment and GST perspective. As India continues to emerge as a global hub for multinational operations and Global Capability Centres, businesses should proactively assess the tax implications of foreign employee secondments to mitigate potential exposure and ensure compliance with an increasingly scrutinized regulatory framework. *Last Updated on 22 June, 2026* --- ## Office Locations - [New Delhi](https://ksandk.com/locations/top-corporate-law-firm-in-delhi/) (HQ): +91-11-41318190 | info@ksandk.com - [Mumbai](https://ksandk.com/locations/top-corporate-law-firm-in-mumbai/): 3 offices (Nariman Point, Lower Parel, Andheri) | mumbai@ksandk.com - [Bangalore](https://ksandk.com/locations/top-corporate-law-firm-in-bangalore/): bangalore@ksandk.com - [Chennai](https://ksandk.com/locations/chennai/): chennai@ksandk.com - [Hyderabad](https://ksandk.com/locations/hyderabad/): hyderabad@ksandk.com - [Pune](https://ksandk.com/locations/pune/): pune@ksandk.com - [Kochi](https://ksandk.com/locations/kochi/): kochi@ksandk.com ## Contact - [Contact Page](https://ksandk.com/contact-us/) - General: info@ksandk.com | +91-11-41318190 - WhatsApp: +91-7428567444 - [Privacy Statement](https://ksandk.com/privacy-statement/) - [Terms of Use](https://ksandk.com/terms-of-use/)