SC takes up EY’s tax dispute over overseas employee transfers

The Supreme Court on Monday agreed to hear global consulting firm EY’s plea challenging a Delhi high court ruling that treated payments made by its Indian entities to its US arm for employees deputed to India as fees for technical services rather than salary reimbursements.

A bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran issued notice to the income tax department, seeking its response to EY’s challenge to the high court’s 18 June 2026 judgment. The matter will next be heard on 1 December.

The dispute centres on employee secondment arrangements, under which employees are temporarily transferred from an overseas company to work for its Indian group entity. The key question is whether payments made by the Indian entity to its overseas counterpart merely reimburse employee costs or amount to payments for technical services that can be taxed in India.

Consulting and technology firms, as well as companies operating global capability centres in India, will closely watch the case as the Supreme Court’s eventual ruling could affect how multinational companies structure such arrangements, as well as their tax liabilities and withholding-tax obligations.

The high court ruling had important implications for multinational companies’ employee secondment arrangements, including greater tax scrutiny and potential impacts on withholding tax and goods and services tax (GST), according to a 6 July 2026 analysis by law firm Trilegal. Simply labelling payments as salary reimbursements may not suffice where overseas entities retain employment links, and employees transfer technical expertise to Indian entities.

Mint's queries emailed to EY and the I-T department remained unanswered.

The dispute covers assessment years 2018-19 to 2022-23 and concerns employees deputed by Ernst & Young U.S. LLP (EY US) to its Indian entities. Under an arrangement dating to October 2017, employees remained on EY US’s rolls, retained certain employment benefits in the US, and were expected to return after completing their assignments.

EY India reimbursed EY US for the costs associated with these employees. The tax department argued that the payments were not merely salary reimbursements but consideration for technical knowledge, skills and expertise provided to the Indian entities.

For assessment year 2019-20, the assessing officer passed an order on 27 July 2022, adding about ₹50.99 crore to EY US’s taxable income. Similar disputes arose for other assessment years.

EY US argued that the payments covered only employee-related costs and did not constitute income earned from providing technical services. In an order dated 20 June 2023, the Income Tax Appellate Tribunal (ITAT) ruled in its favour on the secondment issue, holding that the payments were cost-to-cost reimbursements and did not qualify as fees for technical services under the India-US tax treaty. The tribunal subsequently decided similar disputes for other assessment years.

The tax department challenged the ITAT’s orders before the Delhi high court. In its 18 June 2026 judgment, the court found that EY US retained significant links with the employees, who remain on its rolls while working in India. It also considered the nature of their work, including training and the transfer of technical knowledge and expertise.

It ruled in favour of the I-T department on the principal secondment issue, holding that the payments qualified as fees for technical services.

The court also examined the payments EY US received from Indian clients for services performed in the US. It found that the ITAT had not sufficiently examined the nature of these services and sent several related issues back to the tribunal for fresh consideration.

EY filed its appeal before the Supreme Court on 15 September 2026.

Krishna Yadav is a Senior Correspondent at Mint, based in New Delhi, and part of the corporate bureau. He joined the newsroom as a trainee in 2023 and quickly grew into his current role. He writes on legal and regulatory developments in corporate India, with a focus on insolvency, taxation, company law, and policy. His reporting includes tracking and breaking key legal stories from the Supreme Court, Delhi High Court, NCLT, and NCLAT.<br><br>With a background in law, Krishna is known for simplifying complex legal developments into clear, accessible stories for readers. His work focuses on trends in corporate law and policy that affect businesses. This ranges from explaining tax disputes—like whether coconut hair oil is edible—to writing on why celebrities are seeking personal rights protection. He closely tracks India’s insolvency system, covering issues such as creditor losses, gaps in the process, and challenges in how the framework works in practice.<br><br>Krishna also tracks developments within law firms—covering hiring trends, how firms help companies navigate global challenges, and how the legal industry is adapting to artificial intelligence. Beyond legal reporting, he has written long-form pieces, including on-ground coverage of the 2024 general elections, capturing the scale and logistics of polling across India.<br><br>Outside work, he enjoys travelling, exploring new places, and reading about geopolitics and history.

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