EY US appeals to Supreme Court over India employee secondment tax

Ernst & Young US LLP (EY US) has appealed to the Supreme Court of India, challenging a Delhi High Court ruling regarding the taxability of payments related to employees seconded from the US to Indian entities.

The dispute centers on whether payments made by EY India to EY US for temporarily deputed employees should be classified as cost-to-cost salary reimbursements or as fees for technical services (FTS) under the India-US Double Taxation Avoidance Agreement (DTAA). While the Income Tax Appellate Tribunal (ITAT) previously ruled in favor of EY US, treating the payments as reimbursements, the Delhi High Court overturned this decision.

The High Court determined that the services provided by the seconded employees satisfied the ‘make available’ requirement of the DTAA, noting a transfer of skill and knowledge to the Indian entities. EY US maintains that the payments are pure reimbursements without a profit margin. The outcome of this case is being closely monitored by multinational corporations, technology firms, and consulting companies that utilize similar secondment arrangements in India.