Supreme Court to review tax status of EY US salary reimbursements for Indian secondments

The Supreme Court has issued a notice to examine EY US LLP’s objection to a Delhi High Court judgment that treated salary reimbursements for employees seconded to Indian entities as fees for technical services (FTS) under the India-US Double Taxation Avoidance Agreement. A two-judge bench, comprising Justices J B Pardiwala and K Vinod Chandran, will decide if such reimbursements constitute taxable FTS despite the staff working under the Indian entities’ supervision and tax being deducted at source.

The dispute originated when the Income Tax Department classified the payments as taxable technical service fees, a view upheld by the Dispute Resolution Panel and later reversed by the Income Tax Appellate Tribunal, which held the amounts were merely salary cost recoveries without profit. The Delhi High Court overturned that finding, saying the arrangement transferred technical knowledge and satisfied the “make available” condition of the treaty.

EY US contests this, arguing the reimbursements are not consideration for services. The matter covers assessment years 2018-19 through 2022-23, and the High Court also referred related professional-services payment issues to the ITAT for fresh review.