When Global Talent Meets GST: The Huawei Secondment Ruling explained

Global businesses frequently move employees across borders to support operations, transfer knowledge, and manage international projects. However, these cross-border employee arrangements often raise complex tax questions. A recent ruling involving Huawei Technologies India Pvt. Ltd. has brought renewed attention to the GST implications of such arrangements in India.

This case highlights an important question: Should salaries paid to expatriate employees working in India be treated as a taxable import of services under GST?

Background of the Dispute

The tax authorities argued that when foreign employees work in India while remaining connected to their overseas employer, the arrangement amounts to “import of manpower supply services.” If this interpretation is accepted, the Indian entity receiving such services would be required to pay GST under the reverse charge mechanism (RCM).

Based on this reasoning, a substantial Integrated GST (IGST) demand reportedly over ₹85 crore was raised against Huawei India on the salaries paid to foreign nationals working in its Indian operations.

Huawei challenged the demand before the Karnataka High Court, arguing that these individuals were not service providers from abroad but employees directly working under the Indian entity.

Key Findings of the Karnataka High Court

The Karnataka High Court examined the substance of the employment relationship rather than relying solely on the legal form of the arrangement. Several factors were considered:

1. Expatriate employees were integrated into Huawei India’s organizational structure.
2. Their salaries were paid locally and subject to Indian tax deductions.
3. They worked under the supervision and control of the Indian company.
4. Employment terms and benefits were comparable to those of domestic employees.

Based on these facts, the Court concluded that a genuine employer–employee relationship existed between the expatriates and the Indian entity.

Under Entry 1 of Schedule III of the CGST Act, services provided by an employee to their employer in the course of employment are not treated as a “supply”, and therefore fall outside the scope of GST.

Since the arrangement was considered employment rather than a service transaction, the alleged “import of services” did not arise and the GST demand could not be sustained.

Distinguishing Earlier Judicial Precedents

The ruling also distinguishes the earlier Supreme Court judgment in Northern Operating Systems (NOS), where secondment arrangements were treated as taxable manpower supply services.

In that case, the foreign entity retained economic control over employees and charged the Indian entity with a markup on reimbursements. The Court in the Huawei matter emphasized that such facts were absent here, and therefore the earlier precedent could not be applied mechanically.

Practical Implications for Businesses

The decision provides important guidance for multinational companies operating in India. It suggests that not all secondment arrangements will attract GST, provided certain conditions are satisfied:

1. The Indian entity exercises real supervision and control over the employee.
2. The expatriate is integrated into the local organizational structure.
3. Salaries are paid and taxed in India.
4. Documentation supports the existence of a genuine employment relationship.

However, if the foreign company continues to control the employee or charges a markup on salary reimbursements, the arrangement could still be treated as taxable manpower supply services.

Conclusion

The Huawei ruling reinforces a critical principle in GST law: substance should prevail over form. When expatriate employees genuinely work as part of an Indian company’s workforce, their remuneration cannot automatically be treated as an import of services.

For multinational enterprises, this decision offers relief but also a reminder: Proper structuring of secondment agreements, clear employment documentation, and consistent payroll practices are essential to avoid future GST disputes.

Print