Global consulting firm EY, formerly Ernst & Young, has escalated its tax dispute over employees sent to India to the Supreme Court, challenging a Delhi High Court ruling of June 2026. According to the Supreme Court website reviewed by Mint, EY filed its appeal on 15 September 2026, though the case has not yet been assigned to a bench for hearing. The dispute centers on whether payments made by an Indian company to its overseas group company under a secondment arrangement are merely reimbursement of employee costs or payment for technical services that can attract tax in India. As per Moneycontrol, the appeal is awaiting assignment to a bench and could change how multinational companies are taxed when they temporarily transfer employees from their overseas offices to India.
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. EY US had deputed employees to its Indian entities under an arrangement that began in October 2017, where employees worked in India but remained employees of EY US, retained certain benefits in the US, and were expected to return after completing assignments. EY India reimbursed EY US for these employee costs, but the tax department argued the payments were not merely salary reimbursement, as employees provided technical knowledge, skills and expertise to EY's Indian entities. According to Moneycontrol, the dispute could have implications for multinational companies operating in India, particularly global capability centres (GCCs), technology firms and consulting companies, which frequently bring employees from overseas offices to work on specific projects.
In an order dated 20 June 2023, the income tax appellate tribunal (ITAT) ruled in favor of EY US, holding that the payments were cost-to-cost reimbursements and did not qualify as fees for technical services under the India-US tax treaty. However, the tax department challenged ITAT's orders before the Delhi High Court, and a division bench took a different view in its 18 June 2026 ruling. The court found that EY US retained significant control over the employees and held that the payments to EY US were taxable as fees for technical services, as the employees provided technical knowledge and expertise to EY's Indian entities. As per Moneycontrol, the High Court examined the terms under which EY US had sent employees to its Indian entities, finding that the employees continued to have an employment relationship with EY US, retained certain benefits and could return to the US entity after completing their assignments.
According to Moneycontrol, EY has argued before the Supreme Court that the payments made to EY US were reimbursements of actual salary costs, without any additional charge or profit margin. However, the Income Tax Department's position is that the absence of a profit margin does not, by itself, make a payment tax-free if the underlying arrangement involves the provision of taxable services. Ankit Jain, partner at Ved Jain and Associates, explained that EY contends the remittances represent pure, cost-to-cost reimbursements devoid of any profit markup, while the Income-tax Department takes a stance that withholding tax liability on Fees for Technical Services is determined by the gross nature of the remittance, irrespective of whether the foreign entity realized a commercial profit. The case will be closely watched beyond EY, as the eventual ruling could help determine when reimbursing an overseas employee's salary becomes a taxable payment for services.
