Secondment Arrangement: Potential Tax Litigation

By: Khyati Shah, Senior Manager & Nirav Shah, Manager, PwC India

Opening Remarks
Apart from lateral hiring of talent from top notch B-schools, MNCs often resort to relocation of its in-house talent to India for bringing efficiencies and handholding Indian operations. Such relocation of employees, typically known as secondment, is a common practice adopted wherein the seconded employee would be detached from home country responsibility and would focus on the country where he is seconded. The seconded employees typically occupy the key managerial positions in the company to oversee efficient functioning of Indian business. While the process of executing SSA (i.e. Social Security Agreements) between countries is gathering momentum, the employees typically continue to be on the payroll of their foreign employer for availing social security benefits in their home country.
As a matter of practice, typically salaries of such seconded employee are initially paid by foreign employer, which is reimbursed by Indian company (without any mark up). The taxability of such receipts in the hands of foreign employer has been a subject matter of debate in the past.
The Authority for Advance Rulings (