06 Jul 2026
Cross-border secondment arrangements continue to be one of the most closely scrutinised areas of international taxation, with significant implications for withholding tax, transfer pricing and GST positions. In a recent ruling (Ernst and Young U.S. LLP), the Delhi High Court has provided important guidance on how such arrangements should be characterised, reaffirming that their tax treatment will depend on the commercial substance of the arrangement rather than its contractual form.
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In a significant ruling for multinational groups with Indian operations, the Delhi High Court has held in Ernst and Young U.S. LLP1 (EY US) that cost-to-cost reimbursements made by Indian EY entities to EY US towards salaries of seconded employees were taxable as fees for technical services (FTS) under section 9(1)(vii) of the Income Tax Act, 1961 (ITA) and Article 12 of the India-US double tax avoidance agreement (tax treaty). The Court set aside the Income Tax Appellate Tribunal’s (ITAT) orders and held that the services rendered by the seconded employees satisfied the ‘make available’ test under article 12(4)(b) of the tax treaty. The concept of ‘make available’ envisages that the service-provider should transmit technical knowledge to the service-recipient in a manner such that the service-recipient derives enduring benefit from the service, and is able to independently apply such knowledge in the future, without the aid of the service-provider. Further, the decision reaffirms Centrica India Offshore Pvt. Ltd.2 and underscores that the tax characterisation of secondment arrangements will depend on the substance of control, continuing employment links and knowledge transfer, and not merely on cost reimbursement mechanics.
The ruling signals a stricter judicial approach to cross-border secondment arrangements, particularly where secondees remain linked to the overseas employer and are involved in implementing group-wide standards, processes or know-how. It also shows that courts may look beyond contractual labels and reimbursement mechanics to assess whether the Indian entity has received a taxable service from the foreign group entity.
For taxpayers, the decision is likely to make secondment disputes more fact-sensitive, with greater emphasis on the actual role performed by the secondee, the continuing employment relationship with the overseas entity, and whether the arrangement results in enduring capability or knowledge transfer within India.
EY US, a US tax resident, seconded certain employees to three Indian EY entities under a deputation agreement. The agreement stated that the secondees would work under the control, direction and supervision of the Indian entities, and that EY US would be reimbursed only for actual salary and related costs, without any mark-up. The Indian entities also deducted tax at source under section 192 of the ITA on salary payments made to the secondees. The agreement also provided that the Indian entities were prohibited from soliciting or hiring the secondees for six months after the secondment period, without EY US’s prior written consent.
The dispute centred on whether the reimbursements to EY US were merely pass-through employment costs or consideration for technical/consultancy services rendered through the seconded employees. EY US argued that the secondees became employees of the Indian entities during the deputation period, that no services were provided by EY US, that the ‘make available’ test under the India-US tax treaty was not satisfied and that the income on which tax was deducted under section 192 cannot be taxed again in the hands of EY US. The Revenue argued that the secondees continued to have a live employment connection with EY US and that their role involved transferring EY Group standards, processes and know-how to the Indian entities.
The Court carried out a detailed examination of three connected themes: the continuing employment relationship with EY US, the application of the ‘make available’ test, and the binding effect of Centrica India Offshore and held as follows:
The Court observed that the EY India entities had no power to terminate the relationship between the seconded employees and EY US. The relationship between the secondees and EY US would resume at the end of the deputation agreement. EY India entities could only terminate the secondment, not the underlying employment contract with EY US. This established that EY US retained an overarching control over the secondees and that the secondees maintained a lien on their employment with EY US.
Separately, the secondees continued to be entitled to social security and retirement benefits from EY US during the period of assignment, reinforcing the subsisting employer-employee relationship.
Under the India-US tax treaty (and certain other treaties), technical or consultancy services are taxable as FTS/fees for included services (FIS) only if they “make available” technical knowledge, experience, skill, know-how or processes to the service recipient. In simple terms, the test is not satisfied merely because the service recipient benefits from the provider’s expertise; the recipient must be enabled to apply that knowledge or skill independently in the future, without continued reliance on the service provider.
In this case, the Court observed that the secondees came to India to implement EY Group policies and quality standards, and once imbibed, the EY India entities could apply the same independently – a hallmark of the ‘make available’ test as defined in De Beers India Minerals Pvt. Ltd.3
The Court found the facts of the present case to be similar to those in Centrica India Offshore Pvt. Ltd. Key parallels included the: (i) secondees’ entitlement to social security and retirement benefits from the overseas entity; (ii) inability of the Indian entity to terminate the underlying employment; and (iii) subsisting employment relationship with the foreign entity throughout the secondment period.
The Court held that the ITAT’s orders could not be sustained because they failed to consider this binding precedent.
That said, the ruling is also notable for what it does not discuss in detail. While the ITAT’s orders were set aside for not considering Centrica India Offshore, the judgment does not appear to meaningfully engage with certain other High Court rulings4 in the secondment context, including Marks & Spencer Reliance India Pvt. Ltd.,5 Flipkart Internet Pvt. Ltd.,6 and Abbey Business Services India Pvt. Ltd.7 Taxpayers may therefore continue to examine whether those rulings remain distinguishable or relevant on their specific facts.
Consistent with Centrica India Offshore, the Court affirmed that the mere characterisation of a payment as ‘reimbursement’ and the absence of a mark-up cannot be determinative of the nature of the transaction or negate the accrual of income to the overseas entity.
The Delhi HC’s ruling significantly tightens the tax risk profile of secondment arrangements involving Indian entities receiving personnel from overseas group entities under deputation agreements. The following practical implications and action points merit immediate attention:
Clauses in deputation/secondment agreements that purport to disclaim manpower supply, waive fees, or vest complete control and employer status in the Indian entity may not, by themselves, insulate the foreign entity from FTS (or potentially permanent establishment) characterisation where the overseas entity retains a lien. Multinational groups should audit their agreement structures, particularly:
Indian entities receiving seconded personnel from overseas group entities and making cost-to-cost reimbursements to such entities on grounds of administrative convenience, must now consider whether such payments attract withholding obligations under the ITA. Prior deduction under Section 192 on the secondee’s salary may not extinguish the separate TDS obligation on the FTS payment to the foreign entity. A shortfall in withholding could expose the Indian entity to recovery of tax, interest and penalties. It may also result in disallowance of the corresponding deduction.
Groups should also assess the potential GST implications of secondment/deputation arrangements. If the recharge is treated as consideration for a supply of services by the overseas entity to the Indian entity, the Indian entity may need to evaluate GST exposure under the reverse charge mechanism, including interest and credit implications. The GST position should be reviewed together with the income-tax position, since inconsistent characterisation across tax positions may increase litigation risk.
Training, implementation of group policies, quality standards and process embedment in the scope of work of seconded employees may now be treated as strong indicators of ‘make available,’ resulting in FTS characterisation. Groups should therefore review whether the secondee is merely performing a role for the Indian entity, or whether the secondee is transferring enduring technical knowledge, skill or processes to the Indian entity.
This is the most important practical aspect of the ruling. The Court’s application of the ‘make available’ test arguably lowers the threshold for FTS in secondment cases. The presence of skilled personnel in India, and their use of group policies or methodologies, should not automatically mean that the Indian entity has acquired independent technical capability. There is a meaningful distinction between: (i) a secondee using expertise while working for the Indian entity; and (ii) the Indian entity being enabled to apply that expertise independently after the secondment ends.
The ruling may blur this distinction. It appears to treat implementation of group standards and quality processes as evidence of institutional knowledge transfer. However, in many multinational groups, such standards are part of ordinary group alignment and business continuity. They do not necessarily amount to transfer of technical know-how. Groups should therefore build a contemporaneous record that clearly distinguishes day-to-day role performance from training, capability-building and knowledge transfer. Job descriptions, secondment letters, internal emails, training materials, handover notes and recharge descriptions should be consistent with the intended tax position.
More broadly, the Delhi High Court has reaffirmed Centrica India Offshore as a key precedent for cross-border secondments. The ruling signals that contractual assertions of cost-to-cost reimbursement, local supervision, Indian payroll processing, or Indian withholding under Section 192 may not be sufficient where the overseas entity retains substantive employment attributes, such as lien, control over repatriation, social security and retirement benefits, or restrictions on direct hiring by the Indian entity.
For multinational groups operating Indian Global Capability Centres, captives or subsidiaries with expatriate personnel on the ground, the decision calls for a fresh review of secondment structures. The review should not be limited to the agreement. It should also cover the factual record: who controls the secondee, who bears employment risk, what the secondee actually does in India, and whether the arrangement creates enduring organisational capability in the Indian entity. This last point may become the most contested issue after this ruling, particularly where the Revenue seeks to equate services provided by skilled personnel, group standardisation and organisational continuity with institutional knowledge transfer.
[1] Commissioner of Income-tax (International Taxation)-1 v Ernst and Young U.S. LLP [2026] 187 taxmann.com 711 (Delhi)
[2] Centrica India Offshore (P.) Ltd. v Commissioner of Income-tax -I [2014] 44 taxmann.com 300 (Delhi): The Delhi High Court held that describing a payment as a ‘reimbursement’ or the absence of a mark-up does not itself determine the nature of the transaction. The Court found that the foreign entity had seconded employees to the Indian entity and that such employees transferred technical knowledge and know-how, which enabled the Indian entity to perform the relevant functions independently in future. The Court also upheld the finding that the seconded employees constituted a service PE of the overseas entities in India.
[3] Commissioner of Income-tax, Central Circle v De Beers India Minerals (P.) Ltd. [2012] 21 taxmann.com 214 (Kar.)
[4] These rulings favoured the taxpayer and were delivered after Centrica. Broadly, these rulings held that reimbursement of salary costs under a secondment arrangement did not constitute FTS where the secondment documents supported an employer-employee relationship with the Indian entity and there was no transfer of technical knowledge or skill.
[5] Director of Income Tax (International Taxation) II, Mumbai v Marks & Spencer Reliance India Pvt. Ltd. [TS-178-HC-2017(BOM)]
[6] Deputy Commissioner of Income-tax (International Taxation) v Flipkart Internet (P.) Ltd. [2025] 171 taxmann.com 693 (Karnataka)
[7] Director of Income Tax, (International Taxation) v Abbey Business Services India (P.) Ltd. [2020] 122 taxmann.com 174 (Karnataka)
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