A bench led by Justice PS Narsimha sought a response from the income tax department on appeals filed by Ernst & Young US LLP challenging a Delhi High Court order issued…
Supreme Court to Hear EY US Tax Plea
The Supreme Court has agreed to look into a dispute over whether reimbursements paid on a cost-to-cost basis, arising from the secondment of employees by a US company to its Indian arm, can be taxed as fees for technical services. A bench headed by Justice PS Narsimha sought the income tax department's response on appeals moved by Ernst & Young US LLP. The appeals challenge a Delhi High Court order passed in June.
The Delhi High Court had held that cost-to-cost reimbursements of Rs 24.06 crore received by the US entity amounted to fees for technical services and were therefore taxable. It further ruled that the services provided by the US company met the "make available" test under the India-US Double Taxation Avoidance Agreement. That test is central to how technical services are treated under the treaty.
Why the Outcome Matters
The case turns on how secondment arrangements are characterised for tax purposes. Where an overseas parent sends employees to work with an Indian group company and simply recovers their cost, taxpayers generally argue this is a reimbursement and not a payment for a taxable service. Revenue authorities, however, have in several cases treated such arrangements as a supply of technical services, particularly where the personnel transfer know-how or skills.
If cost-to-cost reimbursements are held taxable as fees for technical services, multinationals could face withholding tax obligations and related compliance exposure on secondment structures. The "make available" finding adds another layer, since it affects whether the payment is taxable in India under the treaty. A ruling either way will influence how cross-border group companies structure deputations and recharges.
What to Watch Next
The immediate step is the income tax department's reply to the notice. The court's eventual reasoning on the nature of secondment reimbursements and the application of the make available test will be closely tracked,…
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