Brief: Cross-border secondment arrangements have remained one of the most litigated issues in international taxation, with courts repeatedly examining whether such arrangements constitute a genuine employer-employee relationship or a taxable provision of services by the foreign entity. While the Delhi High Court’s decision in Centrica India Offshore Pvt. Ltd. v. Commissioner of Income Tax (Delhi High Court), (2014) 364 ITR 336 (Delhi) laid down the foundational principles, subsequent judicial decisions have demonstrated that the tax treatment of secondment arrangements is inherently fact-specific.
It is common for an overseas parent or group company to second experienced personnel to its Indian affiliate to provide technical expertise, managerial support, or specialised knowledge. While these arrangements serve legitimate commercial objectives, they have increasingly become the subject of tax disputes in India.
The controversy primarily revolves around the tax characterisation of payments made by the Indian entity to the overseas company. Taxpayers generally view these payments as mere reimbursements of salary costs under an employer–employee relationship. The tax authorities, however, have often taken the position that the overseas entity is rendering managerial, technical, or consultancy services by making its employees available to the Indian company, thereby attracting withholding tax obligations under the Income-tax Act, 1961 and the applicable tax treaty.
The Centrica Decision
The Delhi High Court’s decision in Centrica India Offshore Pvt. Ltd. v. Commissioner of Income Tax [(2014) 364 ITR 336 (Delhi)] is widely regarded as the seminal judgment on the taxation of cross-border secondment arrangements in India. The case involved employees of overseas group entities who were seconded to Centrica India Offshore Pvt. Ltd. (“CIOP”), an Indian company engaged in providing back-office support services to entities within the Centrica group.
