Secondment — meaning in cross-border tax

It is the question the Indian authorities litigate most often, and the answer decides the withholding. If the group recharge is a reimbursement of salary cost, it keeps the character of employment cost. If it is consideration for services provided by the foreign entity, it becomes a payment to that entity and is taxed on an entirely different footing. Nothing about the wording of the invoice settles it. What settles it is who directs the work, who bears the risk of it, whose business the employee is serving, and whether the amount moving between the companies exceeds the actual cost. Those facts have to be true before they can be documented.

Withholding follows the characterisation. Treated as a reimbursement of employment cost, the obligation attaches to the employment payment to the individual. Treated as a fee for services rendered by the foreign group company, it attaches to the payment to that company, and the outcome turns on the treaty and on whether the recipient has a taxable presence in India. Because the two routes produce different payers, different returns and different certificates, a group that has not decided which one it is filing under usually does neither properly. Decide the characterisation first, in writing, and let the withholding follow it. We quote no rate here, because the rate depends on the treaty in front of you.

For tax purposes there can be two answers at once, and that is the difficulty. The home company may keep the contract, the payroll and the pension, while the Indian entity directs your daily work, supervises you and takes the benefit of it. Indian practice looks hard at that second set of facts, which is why an assignment letter silent on supervision, reporting lines and who can end the placement leaves the most important question open. Ask for the secondment agreement rather than just the assignment letter, and read who controls the work. The answer affects your own return as well as the group position.

It can, and this is the exposure groups tend to notice last. If the secondee is treated as carrying on the foreign company business in India rather than working for the Indian entity, the foreign company may be regarded as having a taxable presence there, with a return to file, profits to attribute to it and a history to explain. The characterisation argument and the permanent establishment argument are the same facts read two ways, so a file assembled to answer one usually answers the other. Deal with both in the same document, before either is asked about.

The things that are later disputed. Who selects the secondee and who can remove them, who directs and appraises the work, whose instructions are followed, who carries the risk of poor performance, what precisely is being recharged and on what basis, and whether anything above cost is included. It should also record the intended duration and the social security position, because those are settled separately from the tax question. An agreement drafted after a query arrives is worth far less than the same words signed before the assignment began. Sign it first, then keep the payroll records, invoices and approvals consistent with it.

Usually yes, and it is often the practical choice, since pension, benefits and continuity of employment all argue for it. But keeping someone on the home payroll does not by itself keep the income out of the host country, and it does not decide the characterisation of the recharge. It creates a second problem to manage instead: the host country may expect a payroll withholding the home payroll is not set up to operate, and a bank may hold the funds transfer until the exchange control documentation supports it. Treat the payroll question, the withholding question and the transfer question as three questions, not one.

It can. One employee working from home in another country may be enough where the arrangement gives the company a fixed place at its disposal, or where that person habitually concludes contracts. Seniority and function matter more than headcount: a salesperson closing deals is a far greater risk than a developer. The exposure is corporate tax and payroll registration in that country, which is why it is worth testing before the hire rather than after. See PE risk review.

It starts with facts rather than structures: which countries have a claim on you, what each one taxes, and where the two overlap. From there the decisions are about order and timing — which country taxes first, where relief is claimed, and whether a filing or a certificate has to be in place before money moves rather than after. Most of the value is in the sequencing, because relief claimed late is usually relief recovered slowly. See international tax planning.