The Delhi High Court’s recent ruling on Ernst & Young U.S. LLP’s secondment reimbursements signals a potential shift in Indian tax treatment, emphasizing formal control and employment links over economic substance, amid ongoing disputes and uncertainties for multinational companies.
India’s treatment of cross-border secondments has again come under scrutiny after the Delhi High Court ruled that reimbursements linked to secondees placed with Ernst & Young U.S. LLP can be taxed as fees for technical services. The June 18, 2026 judgment adds to a long-running dispute over whether such arrangements should be seen as simple cost recoveries or as taxable services supplied by the foreign group entity.
According to analyses published by several Indian tax firms, the court concluded that EY US retained enough legal and practical connection to the secondees to remain their employer for tax purposes. The ruling turned on factors including the foreign entity’s continuing control, the lien it kept over the employees, the fact that Indian entities could end the secondment but not the underlying employment, and the absence of any mark-up on the reimbursements. Those reports said the court treated the commercial substance of the arrangement as more important than its contractual wording.
The decision is important because secondment cases in India have pulled in different directions for years. Earlier rulings such as Carborandum, Boeing, Flipkart and Abbey Business Services were read by taxpayers as supporting the view that secondees can become employees of the Indian company when they work under its control and for its benefit. By contrast, the line of cases starting with Centrica has tended to focus on residual ties with the foreign employer, including knowledge transfer and continuing employment links, as evidence that the overseas entity is still rendering services in India.
That broader conflict remains unresolved. The recent judgment appears to give greater weight to formal employment links than to a pure economic-employer analysis, even though tax specialists say the OECD approach looks at who directs the work, bears the cost, provides the workplace and holds the real disciplinary power. Commentators have also noted that the court’s reasoning sits uneasily with the familiar distinction between Articles 5 and 15 of tax treaties, which can matter when deciding whether a foreign company has a service permanent establishment in India.
For multinational groups, the practical lesson is that secondment documents and day-to-day working arrangements need to be consistent. Indian tax advisers say companies should expect scrutiny of control, termination rights, salary recharge mechanics and training obligations, particularly where the secondee is expected to pass on technical knowledge. Until the Supreme Court settles the issue, secondments into India are likely to remain exposed to challenge even where payments are made on a cost-to-cost basis.
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