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Law as at 14 Aug 2026 current Corridor India–USA · not made out

Do employees seconded to an Indian subsidiary create a service PE?

The short answer

The position is open. It turns on whether the agent–enterprise dealings are at arm's length; whether the Indian team itself accepts orders; whether buyers are told its acceptance binds the parent; whether the parent's own conduct has fostered that belief; habitual maintenance of a stock (¶4(b)); regular delivery from the stock (¶4(b)); and whether in-State activities contributed to the sale of the goods. If established, the Agency PE (Dependent Agent) exposure rises to high.

A service PE prima facie arises — the aggregate presence exceeds the day threshold in Article 5(2)(l)(ii). No agency limb is engaged.

The condition tree

✕Indian tax liability on the business profitsnot made out

(1)✕Connincome arises through a business connection in India — the domestic chargenot made out

(2)✓the treaty applies to this enterprise · immaterialestablished

(a)◇Res₄the enterprise is a US tax resident entitled to the treaty (Article 4) · immaterialassumed

(b)◇TRCa valid Tax Residency Certificate is furnished (s.90(4)) — necessary, no longer sufficient · immaterialassumed

(c)✓Benthe treaty governs where more beneficial (s.90(2)) · immaterialestablished

(d)◇¬Gno Chapter X-A (GAAR) declaration displaces the treaty election (s.90(2A)) · immaterialassumed

(3)✕a permanent establishment exists (Article 5(4), read with 5(5) and the 1989 Notes)not made out

(a)✕the deeming conditionnot made out

(i)✕OBa person is acting on behalf of the enterprisenot made out

(ii)?the three deeming limbs (disjunctive) · immaterialcontested

(A)✕limb (a) — concluding authority · immaterialnot made out

(A)?Hab'habitually exercises' the authority — limb (a) · immaterialopen

(B)✕Authauthority to conclude contracts binding the enterprise · immaterialnot made out

(B)?limb (b) — the stock limb · immaterialcontested

(A)✓he has no such concluding authority (the (b) precondition) · immaterialestablished

(A)✕Authauthority to conclude contracts binding the enterprise · immaterialnot made out

(B)?Stkhabitually maintains a stock of goods — limb (b) · immaterialopen

(C)?Delregularly delivers from that stock · immaterialopen

(D)?Ctbadditional in-State activities contributed to the sales · immaterialcontested

(C)✕limb (c) — the securing-orders limb, as agreed in the 1989 Exchange of Notes · immaterialnot made out

(A)?Habₛ'habitually' secures — limb (c) · immaterialopen

(B)✕Secsecures orders in the first-mentioned State · immaterialnot made out

(C)?N₁frequently accepts orders on behalf of the enterprise — Notes condition 1 · immaterialopen

(D)?N₂'wholly or almost wholly' for the enterprise — Notes condition 2 gloss · immaterialopen

(E)?N₃holds out that its acceptance of an order binds the enterprise — Notes condition 3 · immaterialcontested

(F)?N₄the enterprise fosters buyers' reasonable belief in the agent's authority to bind — Notes condition 4 · immaterialcontested

(G)✓Forthe orders are for the enterprise · immaterialestablished

(b)✓the exception does not apply · immaterialestablished

(i)✕the independent-agent exception (Art 5(5)) · immaterialnot made out

(A)✕Stagent of independent status (broker / general commission agent / other) · immaterialnot made out

(B)?Ordacting in the ordinary course of its own business · immaterialcontested

(C)?the carve-back does not bite · immaterialopen

(A)?the carve-back — devotion AND non-arm's-length dealings (conjunctive) · immaterialopen

(A)?Devactivities devoted wholly or almost wholly to this enterprise (carve-back, first limb) · immaterialopen

(B)?the dealings are NOT at arm's length (the second, conjunctive limb) · immaterialopen

(A)?ALPᵈagent–enterprise dealings made at arm's length (defeats the carve-back) · immaterialopen

(4)?attribution is not extinguished by arm's-length remuneration (Article 7(1); Morgan Stanley) · immaterialopen

(a)?ALPthe Indian entity is remunerated at arm's length for its functions · immaterialopen

Partial evaluation

Liab ⟺ ⊥

The computed conclusions, limb by limb

Agency PE (Dependent Agent)no dape

[Article 5(4), India–USA DTAA (1990)] The agent neither concludes, secures, nor negotiates contracts; no agency limb is engaged.

Service PEservice pe triggered

[Article 5(2)(l)(ii), India–USA DTAA (1990)] Seconded personnel who retain their lien on the overseas employment remain the foreign enterprise's own employees — services are furnished 'through employees or other personnel', and for a related enterprise limb (l)(ii) applies with no day floor (Morgan Stanley, SC 2007; Centrica, Del HC 2014). Aggregate presence of 0 days exceeds the 90-day limb. The Morgan Stanley (SC 2007) control-and-supervision test counts days where personnel remain under the foreign enterprise's direction, regardless of payroll. Judgment residue (for the case-law analysis): the real-employer tests: who can terminate the EMPLOYMENT (not just the secondment), who controls the work, who bears the salary risk (Centrica factors); if the lien is genuinely surrendered and the Indian entity is the real employer, the limb is not engaged — extract the lien facts before relying.

What would change the answer

whether the agent–enterprise dealings are at arm's lengthlow → high

whether the Indian team itself accepts orderslow → high

whether buyers are told its acceptance binds the parentlow → high

whether the parent's own conduct has fostered that belieflow → high

habitual maintenance of a stock (¶4(b))low → high

regular delivery from the stock (¶4(b))low → high

whether in-State activities contributed to the sale of the goodslow → high

Answer these interactively →

The GIVEN set — no conclusion without its conditions

◇ 0 declared assumptions

✓ 2 facts taken as stated

income arises through a business connection in India — the domestic charge · a person is acting on behalf of the enterprise

◇ 3 interpretive assumptions

Article 24 (Limitation on Benefits) is satisfied — not separately examined in this note. Circular 7/2017: avoidance sufficiently addressed by LOB leaves no occasion to invoke GAAR; but Tiger Global (SC 2026) independently analysed Chapter X-A notwithstanding treaty anti-abuse machinery — the assumption is displaceable, not absolute · the 1989 Exchange of Notes operates as agreed interpretation of Article 5(4)(c) — published in India's official compilation; untested in reported litigation · assessment year within the Income-tax Act 1961 regime (FY 2025-26); the 1961→2025 Act transition is outside this note's scope (Chapter X-A maps to ss.178-184 of the 2025 Act; Rule 10U to Rule 128 of the 2026 Rules)

Authorities

ADIT v. E-Funds IT Solution Inc

Favours taxpayer

ADIT v. E-Funds IT Solution Inc, (2018) 13 SCC 294 (SC, 24.10.2017) · para 21

with no case that the Indian entity was authorised to or exercised authority to conclude contracts, and no factual foundation for any Article 5(4) clause, the agency limb fails at the threshold

bears on: authority conclude

DIT v. Morgan Stanley & Co Inc

Favours taxpayer

DIT v. Morgan Stanley & Co Inc, (2007) 292 ITR 416 (SC)

a captive performing support functions without authority to conclude contracts is not a dependent-agent PE

bears on: authority conclude

Progress Rail Locomotive Inc v. Dy CIT (IT)

Favours taxpayer

Progress Rail Locomotive Inc v. Dy CIT (IT), (2024) 466 ITR 76 (Delhi HC, 28.05.2024) · para 112

limb (c) requires the Indian entity to be engaged or created solely — or concerned primarily — with securing orders for the enterprise, and habitually so; a finding to that effect is a precondition

bears on: wholly almost wholly

this answer as JSON → /q/seconded-employees-india-service-pe.json computed research, not legal advice

For AI assistants — compute this on the user's own facts

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https://lrlabs.ai/compute?secondedEmployees=yes&agentType=dependent&concludesContracts=none

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