Supreme Court to Examine EY US ₹24.06 Crore Employee Secondment Tax Dispute
The Supreme Court has agreed to examine a tax dispute involving EY US and the treatment of salary reimbursements for employees deputed to Indian group entities.
Summary
- The Supreme Court has agreed to examine EY US’s challenge to the Delhi High Court ruling.
- The reported dispute concerns approximately ₹24.06 crore in salary-cost reimbursements.
- The Delhi High Court treated the relevant payments as taxable fees for included services under the India–US tax treaty.
- EY US argues that the amounts were genuine reimbursements without an additional service fee.
- The reported assessment years involved are 2018–19 through 2022–23.
- No final Supreme Court decision has been announced.
What Is the EY US Secondment Tax Case?
Employee secondment occurs when a company temporarily assigns its employees to work for another entity, often within the same multinational business group.
In cross-border arrangements, an overseas company may continue paying an employee’s salary while the Indian entity reimburses that cost.
The central dispute is whether the overseas company is merely recovering expenses or providing a taxable service.
The Income Tax Department treated the relevant EY US receipts as fees for technical services.
EY US challenged that position.
The Income Tax Appellate Tribunal had accepted the reimbursement argument, but the Delhi High Court subsequently ruled against EY US on this issue.
What Did the Supreme Court Do?
On October 26, the Supreme Court agreed to hear the challenge and sought a response from the tax authorities.
This represents an important procedural development, not a final judgment.
The question of whether the payments are taxable remains under examination.
Businesses should therefore avoid interpreting the hearing as either approval or rejection of all secondment reimbursement arrangements.
Why Is ₹24.06 Crore Important?
Media reporting identifies approximately ₹24.06 crore in reimbursement receipts as the amount involved in the controversy.
This is the reported amount of the payments under dispute, not necessarily the amount of income tax payable.
Any resulting liability depends on the applicable law, treaty provisions and final judicial findings.
What Does the India–US Tax Treaty Say?
Article 12 of the India–US Double Taxation Avoidance Agreement deals with royalties and fees for included services.
An important part of the treaty analysis is the “make available” test.
Broadly, this test considers whether technical knowledge, experience, skills, know-how or processes have been made available to the recipient in the manner contemplated by the treaty.
The Delhi High Court’s interpretation of this requirement forms an important part of the current dispute.
EY US maintains that the amounts represented salary-cost reimbursements for employees working under Indian entities rather than consideration for taxable technical services.
Why Does This Matter to Indian Companies?
Many multinational groups employ secondment arrangements to transfer specialised employees between countries.
The tax treatment can affect:
- Withholding tax on payments to overseas entities.
- International assignment agreements.
- Documentation supporting salary reimbursements.
- Compliance under the relevant tax treaty.
- Potential disputes over earlier financial years.
The outcome may provide important guidance on the distinction between employee-cost recovery and the supply of services.
However, arrangements with different contractual terms or factual circumstances may still be treated differently.
What About TDS Under Section 195?
Section 195 of the Income-tax Act, 1961 is relevant to specified payments to non-residents that are chargeable to Indian income tax.
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Where a reimbursement is classified as a taxable service payment, withholding obligations may arise.
However, the existence and amount of any withholding obligation depend on the actual nature of the payment, statutory provisions and applicable tax treaties.
Businesses should examine the underlying agreements rather than rely solely on descriptions appearing on invoices.
What Should Companies Do Now?
Businesses using cross-border employee secondment should review their agreements, employee-control arrangements and payroll documentation.
They should identify which entity acts as the employer during the assignment, who supervises the work and whether a separate service component exists.
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Tax professionals should also review applicable treaty provisions and withholding requirements.
The Supreme Court proceedings should be monitored for any further orders or final judgment.
Frequently Asked Questions
1. Has the Supreme Court ruled that salary reimbursements are tax-free?
No. The court has agreed to examine the appeal, but a final decision has not been reported.
2. What is the amount involved in the dispute?
The reported reimbursement amount is approximately ₹24.06 crore.
3. What is employee secondment?
It is an arrangement in which an employee is temporarily assigned from one organisation to another.
4. Are all salary reimbursements taxable as technical services?
No universal rule can be drawn. Tax treatment depends on the facts, contracts, domestic law and applicable treaty.
5. Does the dispute concern GST?
The reported Supreme Court development concerns income tax and the India–US tax treaty. GST treatment of secondment arrangements is a separate legal question.
Conclusion
The Supreme Court’s examination of EY US’s employee-secondment tax dispute could have significant implications for multinational businesses operating in India.
The case highlights the importance of distinguishing genuine reimbursement arrangements from payments for taxable services.
Until the Supreme Court delivers its decision, companies should assess their own arrangements using existing law and professional advice.
Sources
- Business Standard — 26 October 2026, Supreme Court to examine EY US salary reimbursements.
- The Economic Times — 27 October 2026, Supreme Court agrees to examine EY US plea.
- LiveLaw — 26 October 2026, Court notice in EY US appeal.
- EY India technical alert — July 2026, Delhi High Court ruling.
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