Deputation of employees- [Tax ability as fees for technical services/ Permanent Establishment issues]
An issue is under debate as to whether payments made by the Indian company to foreign company towards reimbursement of the salary costs of persons deputed to India would be treated as fees for technical services.
Further, such deputations are often tested for a risk of creation of a PE for the foreign enterprise in India.
Employees deputed to the Indian company work under the control and supervision of the Indian company and are essentially employees of Indian company. Any payments made by the Indian company towards the amounts cross-charged by the Foreign Company would be in the nature of reimbursement of the salary costs and ought not to be taxable.
It is suggested that a specific clarification may be provided by the Government to the effect that as long as the employee works exclusively for the Indian company during the period of deputation and operationally works under the ‘control and supervision’ of the Indian company, payments made by the Indian company to the foreign company would not qualify as FTS. Further, it should be clarified that such an arrangement would not trigger a creation of PE for the foreign enterprise in India.