Should we re-run the safe harbour decision after April 2026?

Almost certainly. The regime changed materially from 1 April 2026: IT and ITeS merged into a single category at a unified 15.5% margin, the eligibility threshold rose from ₹300 crore to ₹2,000 crore, and the block runs five years with the revenue threshold tested only in the first year. A GCC that ruled safe harbour out on the old margins, or because it sat above the old threshold, reached that conclusion on facts that no longer apply. Whether electing is right is still a calculation on your own cost base, because the prescribed margin is a floor rather than a ceiling.

Can our foreign parent become taxable in India because of us?

It can, and this is the exposure that matters most because it is the only one measured against the parent's profits rather than the captive's markup. A permanent establishment can arise from a fixed place at the parent's disposal, from its personnel rendering services here beyond a threshold period, or from someone in India habitually concluding contracts on its behalf. Every one of those tests is applied to what actually happens, not to what the intercompany agreement recites.

Our expatriates are seconded from the parent. Is that a GST problem?

It is a fact question and it has not been settled. The Supreme Court in Northern Operating Systems held a particular arrangement to be a taxable supply of manpower, expressly on its own facts, and CBIC has instructed officers not to apply that decision mechanically. Later High Court decisions have gone the other way where the facts differed. What decides it is who actually employs and controls the individual and what is actually being recharged.

We are a branch or liaison office, not a subsidiary. Does that change things?

Substantially, and in more than one place. For GST, a supply between two establishments of the same person is excluded from export treatment, so a branch supplying its own head office cannot zero-rate however it invoices or in whatever currency — where a subsidiary supplying its parent can. The same structural fact also shapes the permanent establishment analysis. It is usually the single most consequential decision in the whole arrangement, and it was taken when the entity was set up, often for reasons unrelated to tax.

Why look at all of this together rather than one issue at a time?

Because the questions share a factual base and the answers have to be consistent with each other. Who controls the expatriates bears on the secondment analysis and on the permanent establishment analysis. Whether the entity is a subsidiary or a branch decides the GST position and shapes the PE one. What sits in the cost base drives both the markup and the ESOP recharge. Answered separately, by different advisers, in different years, a group can end up with two of its own filings taking positions that contradict each other — and that contradiction is more damaging than either position would have been alone.

GCC & Captive Taxation: Transfer Pricing, PE and GST

Who this is for

Global Capability Centres — technology, engineering, finance, analytics and shared-services operations serving a foreign group.
Captive units remunerated on cost plus a markup.
Branches, project offices and liaison offices, where the structural position differs materially from a subsidiary.
Groups setting one up, where the entity form and the intercompany agreement are still open.

The five questions, and whose tax they are

Question	Whose tax	Measured against
Is the markup at arm’s length?	The captive’s	Its cost base
Does the parent have a permanent establishment?	The parent’s	Profits attributable to India
Is the service to the parent an export?	The captive’s	Output tax and recoverable credit
Are seconded expatriates a supply of manpower?	The captive’s, under reverse charge	The amounts recharged
Is the ESOP recharge deductible and priced?	The captive’s	The recharge itself

The second row is the one that should occupy a group most. Every other question adjusts a markup by a few points on a known cost base. That one moves the tax to the parent and measures it against profits attributable to India — a different order of magnitude, with filing obligations attached and, usually, several years surfacing at once.

✅ Transfer pricing: the April 2026 reset

Arm’s length pricing sits at s.161 of the Income-tax Act, 2025 (the old s.92), with reference to the Transfer Pricing Officer at s.166 (the old s.92CA). For a cost-plus captive the live questions are the markup, what sits inside the cost base, and the comparables.

What changed on 1 April 2026 is the alternative to all of that:

IT and ITeS merged into one category at a unified 15.5% margin;
the eligibility threshold raised from ₹300 crore to ₹2,000 crore; and
a five-year block, with the revenue threshold tested only in the first year.

A conclusion reached against the old regime carries no weight against this one. A large population of GCCs was structurally excluded by the old ₹300 crore ceiling and has had no reason to revisit the question since.

The decision is still a decision. The prescribed margin is a floor you must declare at or above, not a rate your tax drops to — so where your defensible margin sits below 15.5%, electing means paying for the certainty. That is arithmetic on your own numbers, and it has an answer. See the 2026 safe harbour rules.

The parent’s exposure

Three routes, all tested against conduct rather than recitals:

Fixed place — space in India at the parent’s disposal.
Service — its personnel rendering services here beyond a threshold period.
Dependent agent — someone here habitually concluding or negotiating contracts that bind it.

The familiar defence is that an arm’s length markup leaves little further profit attributable to India. It is a real argument with a precise limit: it works only where the functional analysis captures everything the Indian operation actually does. Where functions are being performed for the parent that the markup was never priced for, the premise fails — and it fails exactly where the exposure is largest. See permanent establishment risk.

GST, and the entity form that decides it

The service to the parent looks like a textbook export. Whether it is one turns on something unrelated to any of that: export treatment is denied where supplier and recipient are merely two establishments of the same person.

Structure	Persons	Can it export?
Indian subsidiary → foreign parent	Two	Yes, subject to the other conditions
Indian branch → its own head office	One	No, however invoiced

For a captive this single point often decides the entire GST position — and it was settled when someone chose the entity form, frequently for reasons that had nothing to do with tax. The zero-rating, letter of undertaking and refund mechanics that follow are covered on export of services.

Secondment and ESOP recharge

Seconded expatriates. Whether the recovery is a taxable supply of manpower is a fact question, not a settled rule — the leading decision was expressly confined to its facts and CBIC has instructed against mechanical application. Who employs, who controls, and what is recharged decide it. See secondment and expat GST.
ESOP recharge. Deduction, transfer pricing and withholding rest on one set of facts, so a recharge with no agreement and no actual payment fails all three — separately, in three different proceedings. See ESOP recharge.

⚠️ The risk nobody prices: your own inconsistency

These questions are handled by different advisers, at different times, for different reasons. The transfer pricing team does the markup. Someone else answers the GST notice. A third party structures the secondment. Each answer is defensible on its own.

But they draw on the same facts, and the answers interact:

Arguing the parent controls seconded staff, to explain a payroll arrangement, sits badly beside arguing the parent has no presence in India.
A functional analysis written to support a modest markup sits badly beside a PE defence that depends on it capturing everything.
A cost base that excludes something for transfer pricing sits badly beside a recharge that includes it.

A contradiction between two of your own filings is worse than either position taken alone, because it does the department’s work for it. That is the argument for looking at the five together, and it is the one thing a piecemeal approach cannot deliver.

What to send

The intercompany services agreement, and any secondment agreement
The cost base and markup, and the current transfer pricing documentation
Transaction value for the year, for the safe harbour eligibility test
Reporting lines for seconded personnel, and the pattern of visits by parent staff
The entity form — subsidiary, branch, project or liaison office — and when it was chosen
Any ESOP recharge agreement and the payment trail

The position is worked out across all five questions and set down in writing, so that what you file in one place can be reconciled with what you file in another. For the full technical treatment, see taxation of a GCC or captive unit in India.

GCC and Captive Unit Taxation