business · 2026-06-20
MNCs Face Higher Foreign Talent Costs
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Delhi HC ruled EY US secondment fees are taxable in India as 'foreign technical services,' not salary reimbursementTax of 10-15% must now be withheld on payments to overseas entities for seconded employees, raising talent costs ~10%Ruling affects Big4 firms, global capability centres, and MNCs that routinely bring experts from headquarters to India
Why does this ruling change how MNCs pay?
MNCs treated payments to overseas offices as salary reimbursements, not taxable in India. Delhi HC ruled these are fees for 'foreign technical services' under tax law. Because seconded employees like those from EY US never stopped being foreign employees, the payment looks like a service fee, not a simple payroll transfer.
What exactly is a secondment arrangement?
A secondment places a foreign employee at an Indian entity temporarily. EY US sent staff to EY India, but they remained on EY US payroll. The Indian entity paid EY US to cover salaries. This structure is common across consulting, tech, and banking. The dispute is whether that payment is salary reimbursement or a service fee.
Why did the tribunal rule differently?
The Appellate Tribunal sided with EY US, viewing the payment as a cost reimbursement with no profit element. The Delhi HC reversed this, focusing on the employment relationship. Since secondees stayed EY US employees, the court treated payments as compensation for services rendered, not a neutral payroll pass-through.
How does the treaty rate affect the tax?
India's tax treaties with different countries set withholding rates between 10-15% on fees for technical services. For example, the India-US treaty caps FTS tax at ~15%. If the seconding entity is in Singapore or Netherlands, the rate may differ. MNCs will now need to factor treaty-specific rates into deployment budgets.
What does this mean for India's GCC boom?
India hosts ~1,700 GCCs. Many rely on seconded experts for training and knowledge transfer. A 10-15% withholding tax on such payments raises the cost of deploying foreign talent. Firms like Deloitte, PwC, and KPMG may rethink how frequently they rotate specialists into Indian offices, potentially slowing skill transfer.
Will GCCs shift training models instead?
Some GCCs may switch to virtual training or fly-in consulting engagements under 90 days to avoid permanent establishment risk. Firms like Accenture already use hybrid models. But complex technical work, like ERP implementation or regulatory compliance setup, often requires on-ground presence that virtual formats cannot replace.
Could this slow foreign expert visits to India?
Yes. A ~10% cost increase is significant for firms deploying dozens of experts annually. Companies like Goldman Sachs and JPMorgan, which run large Bengaluru GCCs, may reduce rotation frequency. This could slow knowledge transfer at a time when India is positioning itself as a global talent hub.
Which sectors rely most on seconded talent?
Consulting and financial services rely most heavily on secondments. Big4 firms rotate specialists for audit, tax, and advisory mandates. Tech companies like Google and Microsoft second engineers for product development. Pharma MNCs send R&D scientists. Each sector will now face higher compliance costs on these arrangements.
How many MNCs use secondment arrangements?
All Big4 firms and most large MNCs use secondment arrangements. EY alone has thousands of cross-border deployments globally. Industry bodies estimate hundreds of such arrangements are active in India at any time. The ruling creates a precedent that tax officials chasing revenue targets can apply broadly across sectors.
How many similar tax disputes are pending?
Dozens of FTS disputes are pending across Indian tribunals. Cases involving Shell, Nokia, and Centrica have raised similar secondment questions. The Delhi HC ruling strengthens the tax department's hand in all pending cases, potentially unlocking significant back-tax demands across multiple MNCs.
What's the trend in FTS tax collections?
India's FTS-related tax collections have grown as cross-border service arrangements expanded. The govt collected ~₹1.1L Cr in TDS on foreign remittances in FY24, up from ~₹80K Cr in FY22. This ruling could accelerate collections further by reclassifying payments previously treated as non-taxable reimbursements.
Could this push MNCs to hire locally?
Partially. MNCs may accelerate local hiring for roles previously filled by secondees. EY India and Deloitte India already employ ~100K people each. But niche expertise, like US GAAP specialists or global risk architects, is hard to source locally. The tax burden may be absorbed rather than replaced for high-value roles.
Source: economictimes.indiatimes.com