Taxation of International Employment Arrangements

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Presentation transcript:

Taxation of International Employment Arrangements GOA RRC 06/08/2016 Taxation of International Employment Arrangements BY CA SAGAR S TILAK

Background Globalization and Liberalization Increase in Multinational Companies FDI since 1991 Cross border movement of manpower

Expatriate Income Tax Act?? Ex-Patria Out of country Latin Ex-Patria Out of country Oxford Person living abroad Webster Person residing in a foreign country Income Tax Act??

Incidence of tax for expatriates Residential status Income accrued /deemed to be accrued in India Income received/deemed to be received in India Income accrued & received outside India ROR Taxable NOR/NR Non Taxable

Deemed to accrue or arise Salary ‘deemed to accrue or arise’ in India if it is ‘earned in India’ Explanation to Section 9(1)(ii)- Services rendered in India Actual execution of work vs. Time at Disposal Term ‘Due’ vs. ‘Accrue’ [CIT vs. L.W.Russell (1964) 53 ITR 91 (SC)]

Services rendered in India vs. Services rendered from India: Cases in favour: Delhi HC: A Keilman [1979] Delhi ITAT: ACIT Vs. Shri Ellis D Rozario [2009] Delhi ITAT: DCIT Vs. Vivek Paul [1997] Delhi ITAT: DCIT Vs. Mr.Eric Moroux

For clear classification maintain: Contract to include split employment terms Contract to indicate percentage of time required to be spent for India and other countries Record for services rendered for respective country

Social security contributions in home country Social Security contributions in home country are deductible in India. Relevant case laws: [CIT vs. L.W.Russel (SC) (1964) 53 ITR 91] [ITO vs. Lukas Fole (2009) 124 TTJ 965 (Pune ITAT)] [Gallotti Raoul vs. ACIT (Mumbai ITAT) 1997]

Employment arrangements Secondment Deputation

CASE LAWS

Important rulings TEKMARK GLOBAL SOLUTIONS LLC [TS-5164-ITAT-2010(Mumbai)-O] MORGAN STANLEY & CO INC [TS-5020-SC-2007-O] CENTRICA INDIA OFFSHORE PVT.LTD [TS-237-HC-2014(DEL)-O] JC BAMFORD EXCAVATORS LTD [TS-161-ITAT-2014(DEL)-O] ELI LILLY & COMPANY (INDIA) (P) LTD [TS-124-SC-2009-O]

CENTRICA INDIA OFFSHORE PRIVATE LIMITED Centrica STRUCTURE CENTRICA PLC UK Customer Canada Employees on Secondment Customer UK Cost plus 15% Back office work CENTRICA INDIA OFFSHORE PRIVATE LIMITED INDIA Supervision & quality control Vendor 1 Vendor 2

Facts of centrica ruling Control & supervision Responsibility for errors & omissions Separate agreements with secondees Employees will be paid in home country Employees to remain on payroll of Centrica PLC CIOP will reimburse salary to PLC CIOP deducted tax at source u/s 192

Delhi hc observations- Centrica Payment of salary is an obligation of Centrica UK, being the legal employer. Salary charged by CIO to PLC is not just reimbursement Secondees performed tasks for the home employer No economic employment Secondees provided technical services

Service PE because.... Secondees retained home employment Availed Social security benefits CIO can terminate secondment but not employment Employees can not sue CIO for non payment of salary Contract for service

8 Deputees & other Secondees JCB India Royalty JCB UK IPAA TTA 8 Deputees & other Secondees JCB India

Ruling highlights Two categories of employees No separate consideration for Category 1 employees No agreements between Host entity & Secondees Visiting cards of JCB India can not justify employment Sending employees was part of TTA and hence, IPAA can not be read in isolation Sending employees was at the discretion of JCB Deputed employees constitutes PE & not JCB India

Tds obligations Legal Employer? Section 9(1)(ii) Section 192 ‘Estimated Income’ u/s 192(1) Services rendered for?

Questions ?

Thank you!