Secondment reimbursement is not fees for technical services when it merely covers salary costs and creates no taxable income.

Amounts reimbursed under a genuine secondment arrangement, where the secondee remained on the foreign employer's payroll and the applicant paid only part of salary and related benefits, were treated as employment cost reimbursement rather than consideration for managerial, technical or consultancy services. On that basis, the reimbursements did not constitute fees for technical services or taxable income in the hands of the foreign employer under the Income-tax Act or the treaty, and no tax withholding obligation arose on the applicant.

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Issues: Whether the amounts reimbursed by the applicant to the foreign employer under the secondment agreement constituted fees for technical services and income chargeable to tax, so as to attract deduction of tax at source.

Analysis: The arrangement showed that the secondee remained on the foreign employer's payroll, and the applicant reimbursed only a part of the salary and related benefits. The payment was made in the context of a mutually beneficial secondment arrangement, not as a fee for rendering managerial, technical or consultancy services. Even if the secondee provided technical personnel services, the substance of the payment was partial reimbursement of employment cost and not consideration generating income in the hands of the foreign employer. On that footing, the sum did not fall within fees for technical services under the Income-tax Act or the treaty, and no withholding obligation arose.

Conclusion: The question was answered in the negative and the applicant was not liable to deduct tax at source on the reimbursements made under the secondment agreement.

Ratio Decidendi: A partial reimbursement of salary and related costs under a genuine secondment arrangement does not, by itself, constitute consideration for technical services or taxable income in the hands of the foreign employer.

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