EY Appeals to Supreme Court Over Taxation of Seconded Employees

EY has escalated a tax dispute with India’s revenue authorities to the Supreme Court, challenging a Delhi High Court ruling that classified payments for seconded employees as taxable fees for technical services. The case could have far-reaching implications for multinational corporations that rely on cross-border employee arrangements.

EY Appeals Delhi High Court Ruling on Taxation of Seconded Employees

Global consulting firm EY has filed an appeal with the Supreme Court of India challenging a June 2026 ruling by the Delhi High Court. The High Court had classified payments made by EY’s Indian entities to its US arm for seconded employees as taxable fees for technical services, rather than reimbursements of salary costs.

Details of the Secondment Arrangement and Tax Dispute

The dispute centers on payments made by EY India to EY US under a secondment arrangement that began in October 2017. Under this arrangement, employees from EY US were deputed to work in India while remaining on the US entity’s payroll. These employees retained certain benefits in the US and were expected to return after completing their assignments in India.

The core question is whether these payments constitute reimbursement of employee costs or taxable fees for technical services. The tax department argued that the payments went beyond salary reimbursements, as the employees transferred technical knowledge and expertise to EY India.

Court Rulings and Financial Implications

For assessment year 2019-20, the tax department added approximately ₹50.99 crore to EY US’s taxable income, treating the payments as fees for technical services. EY US countered that the payments were merely cost-to-cost reimbursements for employees working in India, with no separate charge for technical services.

In June 2023, the Income Tax Appellate Tribunal (ITAT) ruled in favor of EY US, stating that the payments were reimbursements. However, the Delhi High Court overturned this decision in June 2026, finding that EY US retained significant control over the employees and that their technical expertise was transferred to the Indian entities.

Potential Impact on Multinationals

The Delhi High Court’s ruling has raised concerns among multinationals that rely on secondment arrangements to deploy talent across borders. Tax experts note that simply labeling payments as salary reimbursements may not suffice if the overseas entity retains control over the employees and their technical knowledge is leveraged by the host entity.

The Supreme Court’s decision could establish a precedent, influencing how similar cases are treated in India and potentially in other jurisdictions with comparable tax frameworks.

Background on Cross-Border Secondment and Taxation

Employee secondment arrangements are common among multinational corporations, allowing them to temporarily transfer employees between entities while maintaining their original employment contracts. These arrangements are often used to ensure compliance with local regulations, transfer specialized knowledge, or manage workforce shortages.

However, tax authorities in several countries have increasingly scrutinized such arrangements, particularly when payments are structured as reimbursements rather than taxable services. India’s tax department has been actively challenging these models, arguing that they may disguise taxable income as cost recoveries.

What this means

Lazyfounder analysis — our interpretation, not reported fact.

This case underscores the growing scrutiny multinationals face over cross-border employee arrangements. For founders and operators, the outcome could redefine how secondment agreements are structured, particularly in markets like India where tax authorities are tightening interpretations of fees for technical services. If the Supreme Court upholds the Delhi High Court’s ruling, companies may need to revisit their tax strategies, documentation, and even the nature of employee control in secondment agreements. The decision could also create a ripple effect, prompting other countries to reassess similar arrangements, increasing compliance costs and legal uncertainty for global teams.

Key takeaways

• EY has escalated its tax dispute to India’s Supreme Court after losing a ruling in the Delhi High Court.
• The dispute revolves around whether payments for seconded employees are taxable as fees for technical services or mere reimbursements.
• The tax department added ₹50.99 crore to EY US’s taxable income for assessment year 2019-20.
• The Delhi High Court ruled that the transfer of technical knowledge and retained control over employees justified taxing the payments.
• Multinationals with cross-border secondment arrangements could face higher tax risks if the ruling is upheld.

FAQ

What is the EY tax dispute about?

The dispute involves whether payments made by EY’s Indian entities to its US arm for seconded employees should be classified as reimbursements of salary costs or taxable fees for technical services.

Why did the Delhi High Court rule against EY?

The Delhi High Court ruled that the payments were taxable as fees for technical services because the employees remained under EY US’s control and transferred technical knowledge to EY India.

What could the Supreme Court’s decision mean for multinationals?

If upheld, the ruling could set a precedent requiring multinationals to reassess their secondment arrangements, potentially increasing tax liabilities and compliance risks.

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