In a marked departure from what was understood to be a settled position of law qua the independence of expatriate secondees, the Delhi High Court (‘High Court’) recently ruled that secondees remain under the overarching control of the seconding entity and that such employees retain a lien over their past employment. In the case of Ernst and Young U.S. LLP^[1] (‘EY US’), while setting aside the Order of the Income Tax Appellate Tribunal, Delhi (‘Tribunal’), the High Court held that cost-to-cost reimbursement on account of secondment of employees by the U.S. entity to the Indian entities qualified as Fee for Technical Services (‘FIS’/ ‘FTS’) under section 9(1)(vii) of the Income-tax Act, 1961 (‘IT Act’) as well as under Article 12 of the India-US Double Taxation Avoidance Agreement (‘India-US DTAA’).

Briefly put, what fell for the High Court’s consideration was the taxability of the secondment arrangement between EY US and three Indian EY entities – EY GBS, EY GDS, and EY LLP India (collectively referred to as ‘EY India Entities’) whereby experienced professionals were seconded from EY US to India under deputation agreements. While the salary cost of such secondees was to be borne by the EY India Entity, such sum was paid by EY US for administrative convenience which was then reimbursed by the relevant EY India Entity. The Assessing Officer (‘AO’) treated such cost-to-cost reimbursements as FTS under section 9(1)(vii) of the IT Act and Article 12 of the India-US DTAA.

EY US was successful in its challenge before the Tribunal, which held that the seconded personnel were in fact employees of the EY India Entities and thus cost-to-cost reimbursements received by EY US could not be taxed as FTS. What seems to have weighed with the Tribunal is the fact that such secondees worked under the control, direction and supervision of the respective EY India Entity and that there was no profit element in the reimbursements by the Indian entity. The Tribunal thus concluded that the remuneration paid to such secondees was already taxed as salary in their hands and that treating the same as FTS and taxing it in the hands of EY US would result in double taxation. The Tribunal further held that the services did not ‘make available’ technical knowledge, experience, skill, know-how, or processes and thus, on that count as well, the same could not be brought to tax in terms of Article 12 of the India-US DTAA.

In Revenue’s appeal before the High Court, the factual conclusions drawn by the Tribunal were overturned as the High Court was of the view that the secondees continued to remain employees of EY US.  This observation was founded on the fact that EY India Entities had no power to sever the employer-employee relationship between the secondees and EY US and that the secondees were entitled to all available benefits including social security from EY US. The High Court articulated this relationship as deputation from EY US to the EY India entities where the employee remained an employee of the overseas entity unless he/she was absorbed into the EY India entities.  The High Court further held that the ‘make available’ test under Article 12(4) of the India-US DTAA stood satisfied as the deputation agreements contemplated provision of ‘training’ to be imparted by the secondees. Accordingly, the High Court upheld the addition made by the AO in respect of the reimbursement, characterising such amount as FTS.

This Judgment is a significant development for multinational enterprises with secondment arrangements in India. It reinforces that the absence of a mark-up on reimbursements does not negate the nature of the transaction as FTS and that the lien of the overseas entity on seconded employees remains a critical factor in determining taxability.

[1] [2026] 187 taxmann.com 711 (Delhi HC).