Reimbursing a US company for a seconded employee's salary is not considered a taxable "Fee for Technical Services" (FTS) under the India-US Double Taxation Avoidance Agreement (DTAA).

The Scenario:

• Juniper Networks Inc., a US company (Assessee), seconded (temporarily assigned) two employees to its Indian subsidiary, Juniper Networks India Pvt. Ltd. (Juniper India).
• The US company paid the salaries of the seconded employees and then received reimbursement from the Indian subsidiary.
• The Indian tax authorities argued that the reimbursement was taxable income for the US company in India under the "Fee for Technical Services" (FTS) provisions of the India-US Double Taxation Avoidance Agreement (DTAA).

The Dispute:

• The Indian tax authorities claimed the reimbursement constituted FTS since the seconded employees provided technical services in India.
• The US company disagreed, arguing the payments were simply reimbursements for salaries they already paid, not a separate service fee.

The Decision:

• The ITAT Bangalore sided with the US company.
• The tribunal held that the reimbursements were not FTS because:
  • The seconded employees remained employees of the US company.
  • The Indian subsidiary didn't receive any distinct technical expertise beyond the employees' existing skills.
  • The reimbursement simply covered pre-existing salary obligations.

Precedence and Reasoning:

• The ITAT referred to a previous case (Goldman Sachs Services Pvt. Ltd.) where similar reimbursements were deemed non-taxable.
• The tribunal emphasized that the key factor is the nature of the arrangement. If it's a simple cost-sharing agreement for existing employees, it's not FTS.

Conclusion:

• This case clarifies the tax treatment of employee reimbursements in secondment arrangements between Indian and US companies under the DTAA.
• Companies involved in such arrangements should carefully analyze the nature of the secondment and ensure proper documentation to support their position in case of tax disputes.

Case-Juniper Networks Inc. versus ITO (International Taxation) Ward 1(2) Bangalore