Owing to Cross-Border Secondments and Remote Working. Your explanatory guide to understand and manage PE risk in today's global mobility landscape.
Understanding PE risk from real scenarios to practical solutions
Cross-border assignments and remote working are reshaping how businesses deploy talent worldwide
As cross-border assignments and remote working continue to shape global mobility, businesses are increasingly deploying their people into new geographies—quickly and often without fully considering tax implications.
Secondments, short-term projects, and internal transfers between group entities are becoming common. But these internal moves can create a taxable presence in the host country—often without anyone realizing it.
A cautionary tale from a US tech company's Indian expansion
CHRO at a US-based tech company
Melissa needed urgent project support for their Indian subsidiary. The solution seemed simple:
"Let's send our key people from the US to India. It's quick, internal, and should be simple."
Her Indian HR colleague, Anil, arranged the logistics— business visas, no local contracts, no secondment agreements.
The team believed that since these were their own employees, no tax issues would arise.
But this assumption would soon cause concern.
Their tax advisor flagged a critical issue:
"Your seconded employees might have created a Permanent Establishment (PE) for the US entity in India."
Melissa's team was surprised. They thought that using business visas and retaining US payroll would avoid any tax issues.
Melissa immediately contacted Expat Orbit to understand the risk and find a solution.
Understanding the global tax concept that caught Melissa's team off guard
Permanent Establishment (PE) is a global tax concept that can expose a foreign entity to tax in another country—even without a legal presence like a branch.
When Melissa's team contacted us, we explained that PE exposure can arise even without setting up a local entity or branch.
Fixed Place of Business: Having a fixed place of business in a foreign country
Dependent Agents: Dependent agents in a foreign country regularly concluding contracts for the home entity
Construction Sites: Construction sites or installation projects in a foreign country
Service Rendering: Rendering services abroad, through home entity personnel
A fixed place through which the business of an enterprise is wholly or partly carried out.
This meant the tax authorities could argue that the US entity was effectively "doing business" in India through these seconded employees.
| Work | Managing Party |
|---|---|
| Seconded employees to India | US Entity |
| Provided office space | Indian Subsidiary |
| Payroll Management | US Entity |
| Supervision of the employees in India | US Entity |
| Local employment contract in India | None |
How cross-border employee movement creates PE exposure
In the context of cross border movement of expatriates, PE is an international tax concept wherein the host country may tax income of home entity to the extent it is generated or relates to activities performed by its personnel in the host country.
For secondments and project work, employees of the US Entity are frequently deployed to India.
Employees spend significant time working in India.
Looking at the situation, Tax Authorities in India may allege that the US Entity is generating income in India through the activities of its seconded employees and therefore has a PE.
Despite no local entity in India, Tax Authorities may want to tax income of the US Entity to the extent it relates to the income generated from operations or projects in India.
Understanding the business drivers behind cross-border employee mobility
Cross-border movement of employees is critical for various reasons. To meet operational demands and optimize costs, mobility professionals like Melissa's team must carefully structure secondments and global assignments.
Internal talent movement across entities for knowledge sharing and skill development
Expanding into new markets requires experienced personnel from home country
Senior leaders managing operations across multiple geographies
Testing new markets before full entity establishment
Building local teams with initial support from experienced expats
Short-term projects requiring specialized expertise from home entity
Understanding the relationship between control and PE exposure
In cross border secondments, the concept of PE revolves around the presence of home entity personnel in the host country.
Hence, if expatriates continue to maintain employment, or deeper nexus with the home entity while on an assignment to the host country, the risk of PE exposure would continue to remain with the home entity.
→ Lower PE Risk
When host entity controls employment, payroll, and supervision
→ Higher PE Risk
When home entity maintains employment relationship and control
Localization: When expats are directly employed by the host entity
Expat's home entity employment is terminated
Issued local employment contract by host entity
Remunerated locally by the host entity
✓ No link to the home entity, thereby fully eliminating PE exposure
Understanding practical challenges that prevent full localization
Completely eliminating links with the home entity is not always possible.
Many practical challenges make it difficult to fully localize expats in every situation.
So how can businesses manage these cross-border complexities?
Business travels and secondments for short terms projects where localization doesn't make sense
Secondment for specific business objectives such as training or career development
Family obligations, social security needs, exchange rate preferences - expats may prefer to remain on home-country payroll
Most global organizations face these practical constraints and find it difficult to fully cut ties between the home entity and the expat.
The concept of Legal and Economic Employer in cross border secondments
The structured secondment approach to manage PE risk
Formal agreement between entities to govern the secondment, control structure, and salary cross-charging. This documentation is critical to demonstrate the proper allocation of employer responsibilities.
Home entity seconds expat to host entity
Host entity offers local employment to expat
Host entity controls and supervises expat, evaluates performance and assumes risks and rewards of his efforts
Salary initially paid by home entity is then cross charged to the host entity
Our experts can help you structure compliant cross-border secondments and minimize PE exposure. Get in touch today for a consultation.
