When notifying MNCs about secondments, tax officials were advised to use caution
The Central Board of Indirect Taxes & Customs (CBIC) has advised its field units to adopt a careful approach while issuing show cause notices regarding the secondment arrangements used by companies hiring expatriates.
Secondment is a common practice among multinational companies where an employee works with an Indian entity but remains on the payroll of the overseas parent company. In this setup, the overseas parent covers the costs for the work done by the employee without any additional markup. The recent directive aims to provide relief to multinational companies that faced challenges in claiming input tax credit due to receiving notices related to this arrangement.
The directive follows industry representations after GST authorities began sending notices to companies employing expatriates, inspired by the Supreme Court’s ruling in the Northern Operating System (NOS) case.
In May 2022, the Supreme Court categorized the secondment of employees by overseas group companies to NOS as a “taxable” service of manpower supply, making service tax applicable. The judgment was based on the agreement between NOS and the overseas group.
CBIC’s directive instructs officials to delve into the specifics of each case. It acknowledges that companies differ in their practices when employing individuals through secondment. The directive emphasizes caution, advising against indiscriminately invoking Section 74(1) of the Central GST Act, which pertains to cases involving fraud or willful evasion.
