Taxpayer Case Study

The issue of secondment resulting in tax exposure for the foreign enterprise has been raised in many Indian rulings. In the case of Metapth Software International Ltd , a company incorporated under laws of UK was a leading provider of software solutions to wireless communication providers. The taxpayer sold software and hardware to Indian customers against payment and transferred ownership of said goods in India. Further, the taxpayer deputed its two employees in India to assist in the set up, establishment and ongoing operation as of n Indian company. The employees were deputed for a year and their salaries were borne by the taxpayer. The ITAT Delhi held that the taxpayer has a service PE in India as the taxpayer failed to furnish details

JC Bamford India Ltd to license know how and related technical documents consisting of all drawings and designs with an exclusive right to manufacture and market Excavator Loader in territory of India. Subsequently, JCBE, JCBI and the taxpayer entered into a tripartite agreement pursuant to which IP was sub-licensed to the taxpayer subject to right of JCBI to continue to exploit IP. As a result, JCBI started paying royalty to the taxpayer. The taxpayer, in turn paid 99.50% of the royalty received from JCBI to JCBE, while retaining 0.50% as its income. Further, as per the technology transfer agreement, JCBE seconded its employees to JCBI on assignment basis. The tax authorities contended that employees of JCBE as seconded to JCBI constitutes a service PE of taxpayer as they were covered under expression ‘or the other personnel’. The ITAT Delhi stated that expression of secondment in itself entails that the employees is still employed by its existing employer but due to an agreement the employer performs duties that benefit a third party , bit the seconded employees performed work that benefited JCBI. The seconded employees in this case remained on JCBI;s payroll and the agreement between JCBI and JCBI clearly stated seconded employees were not to be considered employed by JCBI. The ITAT Delhi held that since seconded employees furnished services including managerial services for a period of more than 90 days during the relevant period, Service PE of the taxpayer is constituted in