{"question":"Do employees seconded to an Indian subsidiary create a service PE?","url":"https://lrlabs.ai/q/seconded-employees-india-service-pe","law_as_at":"14 Aug 2026","facts_as_stated":{"secondedEmployees":"yes","agentType":"dependent","concludesContracts":"none"},"meta":{"engine":"deterministic","llm_in_path":false,"corridor":"India–USA","latency_ms":1.1,"determinate_screen":true},"answer":{"chips":[{"label":"Service PE — high","level":"high"},{"label":"Agency PE (Dependent Agent) — low","level":"low"}],"plain_line":"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.","paragraph":"A service PE prima facie arises — the aggregate presence exceeds the day threshold in Article 5(2)(l)(ii). No agency limb is engaged.","changers":["establishing arm's-length character of agent–enterprise dealings (¶5 second limb) AND order-acceptance by the agent (Notes condition 1) AND holding out that the agent's acceptance binds (Notes condition 3) AND enterprise-fostered belief in the agent's authority (Notes condition 4) AND habitual maintenance of a stock (¶4(b)) AND regular delivery from the stock (¶4(b)) AND sale-contributing in-State activities (¶4(b) third conjunct) → Agency PE (Dependent Agent) rises low → high","the agent's contract role securing orders → Agency PE (Dependent Agent) rises low → medium","the agent's contract role concluding contracts → Agency PE (Dependent Agent) rises low → high"],"deciding_facts":[{"fact":"dealings_at_arms_length","ui_key":"dealingsAtArmsLength","question":"whether the agent–enterprise dealings are at arm's length","from_risk":"low","to_risk":"high"},{"fact":"accepts_orders","ui_key":"acceptsOrders","question":"whether the Indian team itself accepts orders","from_risk":"low","to_risk":"high"},{"fact":"holds_out_binding","ui_key":"holdsOutBinding","question":"whether buyers are told its acceptance binds the parent","from_risk":"low","to_risk":"high"},{"fact":"fostered_belief","ui_key":"principalFostersBelief","question":"whether the parent's own conduct has fostered that belief","from_risk":"low","to_risk":"high"},{"fact":"maintains_stock","ui_key":null,"question":"habitual maintenance of a stock (¶4(b))","from_risk":"low","to_risk":"high"},{"fact":"delivers_from_stock","ui_key":null,"question":"regular delivery from the stock (¶4(b))","from_risk":"low","to_risk":"high"},{"fact":"contributes_to_sale","ui_key":"salesContributingActivities","question":"whether in-State activities contributed to the sale of the goods","from_risk":"low","to_risk":"high"}],"determinacy":{"mechanical":2,"open":7,"resolved_by_composition":0,"index":0.22},"assembled":"deterministic"},"findings":[{"pe_type":"agency","pe_label":"Agency PE (Dependent Agent)","risk":"low","unsettled":false,"conclusion":"NO_DAPE","pinpoint":"Article 5(4)","rationale":"[Article 5(4), India–USA DTAA (1990)] The agent neither concludes, secures, nor negotiates contracts; no agency limb is engaged.","missing_facts":["dealings_at_arms_length","accepts_orders","holds_out_binding","fostered_belief","maintains_stock","delivers_from_stock","contributes_to_sale"],"authorities":[{"citation":"ADIT v. E-Funds IT Solution Inc, (2018) 13 SCC 294 (SC, 24.10.2017)","pinpoint":"para 21","element":"authority_conclude","proposition":"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","disposition":"taxpayer"},{"citation":"DIT v. Morgan Stanley & Co Inc, (2007) 292 ITR 416 (SC)","pinpoint":null,"element":"authority_conclude","proposition":"a captive performing support functions without authority to conclude contracts is not a dependent-agent PE","disposition":"taxpayer"},{"citation":"Progress Rail Locomotive Inc v. Dy CIT (IT), (2024) 466 ITR 76 (Delhi HC, 28.05.2024)","pinpoint":"para 111","element":"authority_conclude","proposition":"the DAPE authority limb requires authority to conclude contracts to be conferred AND habitually exercised; with no conferral shown, habituality never arises","disposition":"taxpayer"},{"citation":"Progress Rail Locomotive Inc v. Dy CIT (IT), (2024) 466 ITR 76 (Delhi HC, 28.05.2024)","pinpoint":"para 112","element":"wholly_almost_wholly","proposition":"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","disposition":"taxpayer"}]},{"pe_type":"service","pe_label":"Service PE","risk":"high","unsettled":false,"conclusion":"SERVICE_PE_TRIGGERED","pinpoint":"Article 5(2)(l)(ii)","rationale":"[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.","missing_facts":[],"authorities":[]}],"proof":{"reading":{"id":"IN-US.LIABILITY.PROOF","instrument":"Income-tax Act 1961 · India–USA DTAA (1990)","pinpoint":"s.9(1)(i) read with s.90(2); Articles 5 and 7(1)","regime":"treaty"},"conclusion":{"label":"liability to Indian tax on the US enterprise's business profits (beyond the arm's-length fee)","kind":"PLAIN","status":"F2","line":"liability to Indian tax on the US enterprise's business profits (beyond the arm's-length fee) — FALSE — proven.","grades":{"grade":"clear","rank":5,"line":"The position is clear.","basis":"computed from the proof tree","us_grade":"will","us_line":"will — the conclusion follows mechanically from the operative text","position_view":{"position":"affirmative","grade":"untenable","line":"Corollary: the affirmative position is untenable — the position is unlikely to prevail. (no substantial authority — the position is contrary to the weight of authority)."}}},"given":{"assumptions":[],"facts_as_stated":[{"label":"income arises through a business connection in India — the domestic charge","fact":"bc_agent_route","value":false},{"label":"a person is acting on behalf of the enterprise","fact":"acts_on_behalf","value":false}],"interpretive":["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)"]},"critical_path":[],"burden_view":{"status":"F2","resolved_by_burden":[]},"defeaters":[{"id":"gaar","label":"Indian GAAR (Chapter X-A, ss.95-102 ITA 1961; ss.178-184 ITA 2025)","authority":"AAR (Income Tax) v Tiger Global International II Holdings, 2026 INSC 60 (SC, 15 Jan 2026)","note":"an impermissible-avoidance-arrangement declaration recharacterises what the treaty form permits — s.90(2A) makes Chapter X-A prevail over the beneficial election; procedure: s.144BA reference to the Pr.CIT and the Approving Panel","computed":false,"gate":{"status":"reserved","excluded_by":null,"conditions":[{"id":"not_in_force","label":"Chapter X-A applies to assessment years beginning on or after 1 April 2018 (s.95(2)) — this assessment year precedes commencement","status":"unknown","detail":"fact 'gaar_pre_commencement' not supplied"},{"id":"threshold","label":"aggregate tax benefit ≤ ₹3 crore — Chapter X-A cannot apply (Rule 10U(1)(a); s.102(10); net basis across all parties, per arrangement per AY — Circular 7/2017)","status":"unknown","detail":"fact 'tax_benefit_cr' not supplied"},{"id":"grandfathered","label":"income from transfer of investments made before 01.04.2017 (Rule 10U(1)(d), as amended by Notif 54/2026 w.e.f. 31.03.2026)","status":"unknown","detail":"fact 'investment_pre_2017' not supplied","caveat":"for benefit years before the 31.03.2026 amendment, Tiger Global (para 46) read Rule 10U(2) to dilute the vintage cut-off where the arrangement's tax benefit arises on or after 01.04.2017; the amendment's reach into earlier years is unresolved"}],"invocation":{"label":"the Revenue invokes Chapter X-A (s.144BA reference)","status":"unknown"},"substantive":{"label":"impermissible avoidance arrangement (s.96(1))","note":"main purpose of obtaining a tax benefit — presumed from a step's main purpose, onus on the taxpayer (s.96(2); Tiger Global para 49) — plus any tainted element: (a) rights or obligations not ordinarily created between persons dealing at arm's length; (b) misuse or abuse of the Act; (c) lack of commercial substance (s.97); (d) means or manner not ordinarily employed for bona fide purposes. Judgmental — never computed by this engine"}}}],"detail_hint":"call with detail='full' for the complete condition tree and written derivation"},"formal":{"formula":"Liab ⟺ Conn ∧ Tr ∧ PE ∧ ¬ALP","residual":"Liab ⟺ ⊥","closed":true,"value":false,"open_predicates":[],"counts":{"conditions":23,"established":2,"assumed":3,"open":0,"immaterial":21,"not_made_out":5,"determined":23}},"exposure_map":[],"overall_risk":"high"}