The deputation of employees/ personnel to Indian business set-ups of the Multinational Companies (MNCs) has been a need as well as a regular practice. This practice is surrounded by various Income-tax controversies for long. The courts in India have given multiple rulings deciding whether the cost cross charge against secondment arrangements are in the nature of fee for technical services / fee for included services requiring tax withholding or mere cost reimbursement with no tax implications. The decisions have also analyzed constitution of permanent establishment (PE) of the overseas entities in India by virtue of seconded employees.
The recent ruling of Mumbai ITAT in case of General Motors Overseas Corporation, adds another dimension to this controversy by not allowing any deduction of expenses from the gross receipts while computing the tax liability of the PE. The said conclusion has been reached by interpreting Article 7(3) of the India-USA Double Taxation Avoidance Agreement along with Section 44D of the Income-tax Act, 1961.
The ruling of the ITAT will have wide reaching impact on various MNCs and their Indian affiliates, not only the ones deputing employees to India but on all those having income in the nature of royalty/fee for technical services. This ruling may also have impact on disputes already pending before tax authorities/ appellate forums.
Mr. S. Vasudevan, Partner and Mr. S. Sriram, Joint Partner, L&S Attorneys will be the key speakers in this conference call.