EY has approached the Supreme Court challenging a Delhi High Court ruling on the tax treatment of payments made for employees temporarily deputed from overseas offices to India.
The appeal, filed on 15 September, challenges the High Court’s 18 June ruling, which held that payments made by EY India to its US counterpart for employees deputed to India could be treated as fees for technical services rather than reimbursement of salary costs. The Supreme Court website shows that the appeal is awaiting assignment to a bench.
The case concerns employee secondment arrangements, under which employees of an overseas entity are temporarily assigned to an Indian group company. The overseas entity may continue to pay the employees’ salaries, with the Indian entity subsequently reimbursing those costs.
The dispute is over whether such payments represent a simple recovery of salary expenses or constitute consideration for services provided by the overseas entity, making them taxable in India.
In its ruling, the Delhi High Court examined the employment arrangements involving EY US and the deputed employees. It noted that the employees retained an employment relationship with the US entity, continued to receive certain benefits and could return to the overseas entity after completing their assignments. The court also found that they were using their expertise and transferring technical knowledge to the Indian entities.
EY has argued before the Supreme Court that the payments were pure, cost-to-cost reimbursements of salary expenses and did not include any profit margin. The Income Tax Department has maintained that the absence of a profit margin does not by itself determine whether a payment is taxable as fees for technical services.
The dispute is being watched by multinational companies, including global capability centres, technology firms and consulting companies, that use similar secondment arrangements to bring specialised employees to India.
The tax treatment of such arrangements depends on factors including the terms of the secondment, the employment relationship, the nature of services performed and the applicable tax treaty. A Supreme Court ruling could provide further clarity on when payments made to overseas entities for deputed employees may attract tax and tax-withholding obligations in India.
