Ernst & Young has filed an appeal with India’s Supreme Court against a Delhi High Court ruling that deemed reimbursements for expatriate staff as taxable fees for technical services, potentially reshaping international staffing arrangements in India.
Ernst & Young has taken its tax fight over overseas secondments to India’s Supreme Court, asking the court to overturn a Delhi High Court ruling that treated reimbursements linked to expatriate staff as taxable fees for technical services. The appeal was filed on 15 September and is still waiting to be assigned to a bench, according to the court website and reporting by LiveMint.
At the centre of the dispute is a common multinational staffing model in which employees from an overseas affiliate are sent to work temporarily in India while their salaries and related costs are paid abroad and later recovered by the Indian business. EY says those sums are simple, cost-to-cost reimbursements with no profit element. The tax department has argued that the absence of a mark-up does not, by itself, prevent the payment from being taxed.
The Delhi High Court’s ruling, issued in June and discussed by EY in a July alert, found that the payments made by Indian entities to Ernst & Young U.S. LLP were taxable under the India-US tax treaty as fees for included services or fees for technical services. The court said the arrangement went beyond payroll recovery and involved the transfer of technical knowledge and expertise to the Indian side, satisfying the treaty’s “make available” test, according to EY’s summary of the decision and legal commentaries on the judgment.
The case is being closely watched by global capability centres, technology companies and consulting firms that rely on secondment arrangements to move specialist staff into India. Tax treatment in such cases can depend on the wording of the secondment contract, the employment relationship, the nature of the work performed and the relevant treaty provisions. A Supreme Court ruling could set an important marker for whether similar payments attract Indian tax and withholding obligations.
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