The Supreme Court has issued notice to the revenue in EY US LLP’s appeal challenging the Delhi High Court’s ruling on taxability of employee secondment costs as fees for technical services.
SC Issues Notice in EY US ₹368cr FTS Case
The Supreme Court has issued notice to the Income Tax Department in an appeal filed by EY US LLP challenging the Delhi High Court’s decision in a ₹368 crore international tax dispute involving cross-border payments for secondment of employees to Indian subsidiaries.
The core issue is whether the cost of seconding employees by a foreign entity to an Indian concern constitutes 'fees for technical services' (FTS) under Section 9(1)(i) of the Income Tax Act and the relevant Double Taxation Avoidance Agreement (DTAA). The Delhi HC had ruled in favor of the taxpayer, holding that the payments were integral to employment and not taxable as FTS.
The appeal raises significant questions on the characterization of cross-border intra-group staffing arrangements.
"The nature of the service must be assessed from its factual matrix,"noted the Bench. The outcome could impact MNCs relying on secondment models. Practitioners should monitor this case for clarity on when employee deployment crosses into taxable technical service territory.
Citations
- S. 9(1)(i), Income Tax Act; DTAA provisions
