Secondment of employees is an indelible tool for any global business and is a time-proven strategy to leverage subject matter expertise. However, such secondment exposes Multinational Enterprises (‘MNEs’) to Permanent Establishment (‘PE’) risks as seconded employees  and the functions carried out by them may be construed as giving rise to a PE.  Needless to say, determination of a PE through secondees is a vexed question with many factual intricacies involved.

The Delhi High Court (‘DHC’), recently adjudicated upon this issue, arising out of a batch of appeals of the Income Tax Department^[1] from the decision of the Income Tax Appellate Tribunal (‘ITAT’).^[2]  In this decision, it has been held that when secondees are performing functions on behalf of the company they are seconded to, they cannot be said to form a PE of the foreign entity. While coming to this conclusion, the DHC relied on its existing jurisprudence^[3] as well as the OECD Model Commentary, 2017.  As per this decision, the acid test for determining as to whether secondees give rise to a PE is whether such secondees work in furtherance of the enterprise they are placed in, or for gain of their former employer / foreign entity.

The decision was considering the peculiar facts of the case wherein Samsung Korea had seconded its employees to work for its Indian subsidiary. The Income Tax Department alleged that through secondees, the premises of the Indian subsidiary were being used by Samsung Korea for executing its business operations. While initially, the Income Tax Department in the draft assessment order had alleged a Fixed Place PE, Dependent Agent PE and a Service PE, however the case of Service PE and Dependent Agent PE was dropped pursuant to favourable directions by the Dispute Resolution Panel.  The foundation of the Income Tax Department’s case was an allegation that the secondees were actively exchanging information with Samsung Korea thereby furthering the business of the Korean entity, specifically pertaining to global business management.

While allowing Samsung Korea’s appeal, the ITAT aptly concluded that in the absence of any proof of global business management activity and lack of nexus between exchange of information and furtherance of Samsung Korea’s business, the question of fixed place PE does not arise. The DHC has accordingly upheld this very finding by supporting it with international jurisprudence which tends to emphasize on interpretation of terms of employment of the secondees as valid evidence to determine the existence of a fixed place PE.

[1]  PCIT v. Samsung Electronics Co. Ltd., [2025] 164 – DB (Delhi High Court).

[2]  Samsung Electronics Co. Ltd. v. DCIT, [2018] 92 taxmann.com 171 (Delhi ITAT).

[3]  Progress Rail Locomotive Inc. v. DCIT, [2024] 466 ITR 76 (Delhi High Court) and Hyatt International Southwest Asia ltd. v. CIT, (2024) SCC OnLine Del 6546 (Delhi High Court).