Could an enterprise be regarded as having a service permanent establishment (PE) in a Source State on account of secondment of employees to a company situated in that State? In a relatively recently pronounced Indian decision, the Indian tax authorities took that position.

In the above-mentioned decision, a US company had seconded some personnel to an Indian company. Those personnel worked under control and direction of the Indian company. The US company paid salaries to those personnel, and the Indian company reimbursed the US company’s costs on that account. While the Indian company did not withhold tax on the payments to the US company, the Indian company withheld the amount of tax on the personnel’s salary incomes in accordance with Sec. 192 of the Indian Income Tax Act, 1961 (“the Act”) and deposited the same with the Indian treasury (except for one of the tax years, for which the Indian company deposited ‘advance tax’ with the Indian treasury on behalf of the seconded personnel).

The Indian tax authorities concluded that...