Delhi High Court upholds Centrica ruling: employee secondment may trigger permanent establishment

By Dharmesh Pandya

Multinationals with operations in India should take note of the Delhi High Court’s recently decision in Centrica India Offshore Pvt Ltd, in which it upheld a ruling of the Authority for Advance Rulings that an employee secondment that brings global affiliate employees to India may give rise to a permanent establishment (PE) in India.

Centrica India Offshore Pvt Ltd was a subsidiary of Centrica plc, United Kingdom (Centrica UK). The overseas entities outsourced some of their back-office support functions to third-party vendors in India. Centrica UK set up Centrica India to act as an interface between the third-party vendors in India and the overseas entities. Centrica India provided services to overseas entities in terms of a service agreement under a cost-plus arrangement.

Centrica India, in order to comply with its obligations in the service agreement, had asked Centrica UK and its other global affiliate entities to provide staff with knowledge and experience of various processes and practices. Pursuant to that request, a secondment agreement was entered into between Centrica India and the overseas entities, under which some managerial employees of the overseas entities were deputed to Centrica India for short-term assignments ranging from three to 19 months)…

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