The increasing globalization and enhanced cross-border connections have led to a significant increase in the movement of personnel across international boundaries. However, from a tax standpoint, this presents a range of challenges for both employers and employees. Often, employees and corporations find it challenging to comprehend their tax obligations during periods of secondment or deputation.
Key areas of concern include establishing residency status, identifying taxable incomes in both India and the host country, and making use of tax credits in alignment with Double Taxation Treaty agreements. These are common areas where individuals frequently seek guidance and assistance.
• Determining the residency status and tax obligations of the employee during the secondment.
• Filing tax returns in India and abroad while leveraging DTAA benefits to mitigate the impact of double taxation.
• Evaluating the tax treatment of Employee Stock Ownership Plans (ESOPs) for seconded employees.
• Structuring salary components to effectively manage global tax liabilities.
• Analyzing the taxability of social security benefits.
• Assessing the tax consequences for the company or employer involved.
• Examining the tax implications related to reimbursing salary costs from the perspective of the Indian company.
• Investigating whether the secondment creates a permanent establishment in India for tax purposes.
• Addressing Transfer Pricing considerations when secondment or deputation involves an affiliated enterprise.
Here are a few scenarios that you might find relatable:
Case 1 – Mr. Rahul’s Tax Residency Status: Mr. Rahul, a UK employee, has been on a secondment to India since 2006. As per Indian Residency Rules, for the fiscal year 2015-16, he qualifies as a ‘Resident’ in India. Since he is returning to his home country on July 31, 2016, the current scenario dictates that Mr. Rahul’s worldwide income will be subject to taxation in India. Consequently, his salary earned from August 1, 2015, to March 31, 2016, will be taxable in India, with exemptions under the Double Taxation Avoidance Agreement (DTAA) applied. Our client was provided with comprehensive advice, taking into account DTAA provisions and the Indian Income Tax Act.
Case 2 – Mr. Rahul’s Deputation to Germany: Mr. Rahul is employed in a software company in India and was deputed to Germany in 2008. During the fiscal year 2008-2009, he made contributions to Social Security in Germany, while from 2009 to 2013, contributions were made to a Provident Fund in India. Mr. Rahul sought our assistance, and we provided him with tax consultation regarding Double Taxation Avoidance Agreements, Social Security Agreements with Germany, the refund of contributions, and tax planning related to these aspects.
