An Indian company sends an employee to work at its Dubai affiliate for two years. What tax issues do you review for the employee and the companies?

What the interviewer wants to hear

• Employee’s residential status and taxability of salary in India
• Treaty treatment of employment income and tie-breaker
• Which entity pays and bears the cost, recharges and transfer pricing
• Permanent establishment risk for the Indian company in the UAE or vice versa
• Withholding, social security and documentation

Model answer

For the employee, I first check residential status. If he leaves India for employment and spends enough time abroad, he may become non-resident, and salary for work done in the UAE and received there would generally not be taxable in India. If he stays resident, his worldwide salary is taxable in India, and the treaty and tie-breaker rules become important, especially since the UAE has no personal income tax to credit. I would review where salary is paid and received, because salary received in India can be taxable even for a non-resident. For the companies, I look at who employs him and who bears the cost. If the Indian company keeps paying and recharges the Dubai affiliate, the recharge must be at arm’s length and may raise questions on GST, TDS and whether it is a service fee. I also check whether his activities could create a permanent establishment for either company, and sort out social security and documentation.

More hard Tax Consultant questions

• An Indian company has significant transactions with its UAE parent. How would you approach transfer pricing compliance and documentation?
• A client receives a GST show cause notice proposing a large demand for wrongly claimed input tax credit. How do you handle it?
• An Indian entrepreneur wants to set up a company in Dubai to serve global clients while still managing the business from India. What tax issues would you raise?
• A client proposes routing Indian investments through a holding company in another country mainly to reduce capital gains tax. How do you advise?
• An assessment order makes a large addition you believe is wrong. Walk through the remedies and how you would choose between them.
• A client plans to acquire a mid-sized Indian company. How would you carry out tax due diligence?
• How does the global minimum tax (Pillar Two) affect multinational groups with entities in the UAE?
• A long-standing client asks you to show some personal expenses as business expenses and to leave out cash receipts. How do you respond?
• A client wants to sell one division of its Indian company as a going concern. What tax considerations would you raise?