Employee secondment is common in multinational groups. A foreign parent sends employees to an Indian subsidiary for a period, and the subsidiary reimburses salary and related costs. GST authorities often treat this as a taxable manpower supply service. The Supreme Court's decision in Northern Operating Systems has strengthened this view.
What Is Secondment?
Secondment occurs when an employee remains on the payroll of one entity, usually a foreign parent, but works under the control and direction of another entity, usually an Indian subsidiary. The host entity may reimburse salary, allowances, social security and other costs.
Employment Exclusion vs Manpower Supply
Under Schedule III of the CGST Act, services by an employee to an employer in the course of employment are outside GST. However, in a secondment arrangement, the employee's contract may remain with the foreign entity. The Indian host may not be the legal employer.
The Supreme Court in Northern Operating Systems Pvt. Ltd. v. Commissioner of Customs (2022) held under the pre-GST service tax law that secondment arrangements can constitute manpower recruitment or supply agency services, not an employment relationship between the employee and the host. The employee was not employed by the Indian entity, and the foreign entity supplied manpower services.
GST authorities apply this reasoning. A secondment arrangement may therefore be treated as a taxable supply of manpower services by the foreign entity to the Indian entity.
Reverse Charge on Import of Services
If the foreign seconding entity is located outside India and does not have a GST registration in India, the services supplied to the Indian entity are import of services. Under Section 5(1) of the IGST Act read with Section 7(1)(b) of the CGST Act, import of services for consideration is a supply.
The Indian recipient is liable to pay GST under reverse charge. Notification No. 10/2017-IGST (Rate) covers services supplied by a person located in non-taxable territory to a person located in non-taxable territory? Actually services supplied by any person located in non-taxable territory to any person other than non-taxable online recipient are covered under reverse charge. The Indian entity must self-invoice and pay IGST.
Related Party and Schedule I
If the foreign parent and Indian subsidiary are related persons, Schedule I may also apply. Import of services by a taxable person from a related person outside India, or from any of its establishments outside India, is a supply even without consideration. Thus, even if the Indian entity does not reimburse the cost, a reverse charge liability may still arise.
Valuation
The value of the supply is the full amount charged by the foreign entity, including salary, allowances, social security, bonus, insurance and any mark-up. If no charge is made or the amount is less than open market value, valuation under Rule 28 applies:
- Open market value.
- Value of like kind and quality services.
- 110% of cost of provision of services.
- Reasonable cost plus margin.
Compliance Steps
- Review secondment contracts to determine control, direction and employment relationship.
- Determine whether the host entity is the legal employer or merely receiving manpower.
- If reverse charge applies, register under GST and obtain a self-invoice.
- Compute value including all reimbursements and costs.
- Pay IGST under reverse charge and claim eligible ITC.
- Maintain documentation supporting valuation and the nature of the arrangement.
Risks and Recent Developments
Secondment arrangements are under increased scrutiny. GST officers may issue demands for the entire period of secondment. The Supreme Court decision in Northern Operating Systems has been applied to support such demands. Businesses must evaluate each arrangement on facts.
How Anuj Desai & Associates Can Help
We help multinational groups structure secondment arrangements, assess GST and reverse charge exposure, manage valuations, handle audits and negotiate with tax authorities.
Contact Anuj Desai & Associates
Email: office@anujdesaiassociates.com
Phone: 9619456656
Website: https://anujdesaiassociates.com
LinkedIn: linkedin.com/in/ca-anuj-desai-122547230