28 Jun 2024
Two years ago, the Supreme Court of India held secondment arrangements to be taxable under the Service Tax regime. This article examines the resultant uncertainties created in indirect taxation, especially Goods and Services Tax, and suggests possible strategies for dealing with ongoing litigations and structuring secondment arrangements. It also reviews the recent recommendations of the Goods and Services Tax Council impacting ongoing litigation on secondment issues.
Driven by globalisation, companies are expanding their operations internationally to seek new markets, partners, and growth opportunities. This expansion often requires movement of personnel across borders. As a strategic tool, companies enter secondment arrangements to optimally utilise their talent. India, with its rapidly growing economy and increasing role in global trade, is also seeing an uptick in secondment arrangements.
In a secondment arrangement, expatriates are deputed by the foreign parent company to an Indian subsidiary company. The foreign entity and the Indian entity enter into a secondment agreement that governs the terms of the secondment. Subsequently, a separate employment agreement is executed between the secondee and the Indian entity which typically specifies that the seconded employee will be in full-time employment with the Indian entity during the period of secondment. It outlines details such as the tenure of employment, place of work, salaries and other benefits of secondees, duties and responsibilities of secondees, termination of employment, resignation, dispute resolution, etc. The secondees must follow the rules, regulations, office timings, and code of conduct of the Indian entity and make themselves eligible for tax deduction at source and paying taxes in India. The period of secondment is normally fixed and is extendable on mutual agreement between secondees and the Indian Entity. For all practical purposes, the secondees work under the direction and control of the Indian entity. The salary of the secondees is directly disbursed by the Indian entity and the residual portion (mainly, the social security benefit) is paid by the foreign entity which is then reimbursed by the Indian entity.
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