Secondment structures and the PE and tax risk they create for foreign employers.
Foreign groups that second expatriate employees to their Indian entity face a sharpened tax risk after the Supreme Court decision in Northern Operating Systems, which treated a secondment arrangement as a taxable supply of manpower services by the foreign employer. The judgment has consequences for both indirect tax and the direct-tax questions of permanent establishment and fees for technical services.
The outcome turns on who is the real employer, who bears the risk and reward of the employees work, and how the arrangement is documented and charged. AMLEGALS advises foreign groups on structuring secondments to manage service-PE, FTS and GST exposure, drafting the secondment and reimbursement arrangements, and defending the position if the authorities recharacterise it.
Testing the existing or proposed secondment against the Northern Operating Systems criteria for real employer and risk.
Assessing whether the seconded personnel create a service permanent establishment of the foreign entity.
Analysing whether cross-charges are pure reimbursement or taxable fees for technical services.
Advising on the GST treatment of the manpower arrangement and the available credits.
Redrafting the secondment agreement, employment terms and cost arrangements to support the position.
Defending the direct and indirect tax position if the arrangement is challenged.
It can. After Northern Operating Systems, a secondment can be treated as a taxable supply of manpower and can raise service-PE and fees-for-technical-services questions. The risk depends on who is the real employer and how the arrangement is documented and charged.
The Supreme Court treated the arrangement in that case as a supply of manpower services liable to indirect tax. Whether GST applies to a particular secondment depends on its structure. AMLEGALS advises on the GST treatment and the credit position.
Yes, by aligning the employment relationship, risk and documentation so that the Indian entity is the real employer and the cross-charge is genuine reimbursement, consistent with the law. AMLEGALS redesigns the arrangement and its documentation accordingly.
No. No engagement is treated as accepted until conflicts, scope and terms are confirmed in writing. An initial discussion is confidential and is used only to understand the matter and assess fit.
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