Seconding an employee from one group entity to another across a border is operationally routine, filling a skills gap, transferring specialist expertise, supporting a new market entry, but it sits at the intersection of two distinct tax exposures that are too often analysed separately: whether the intercompany recharge for the seconded employee's cost is priced at arm's length, and whether the secondment itself creates a permanent establishment for the sending entity in the host country.
Pricing the Secondment Charge
The transfer pricing question is comparatively straightforward in principle: the host entity should be charged an amount reflecting the arm's length value of the services the seconded employee actually performs there, which is not necessarily the same as a simple pass-through of the employee's salary, social security, and benefits cost. Where the seconded employee performs functions of genuine value to the host entity beyond a routine administrative role, a markup on the recharged cost, rather than a bare cost pass-through, is typically required to reflect the value of the service being provided, not merely the cost of employing the individual.
Who the Employee Is Actually Working For
A recurring complication is determining whether the seconded employee, during the secondment period, is genuinely working under the direction and control of the host entity, in which case the arrangement functions economically like a service provided by the sending entity, or has effectively become integrated into the host entity's own operations as if directly employed there, in which case the appropriate characterisation, and the appropriate charge, may look quite different. Employment contracts, day-to-day reporting lines, and who bears the economic risk of the employee's work each inform this characterisation.
The Dependent Agent Permanent Establishment Risk
Separately from pricing, a seconded employee who habitually concludes contracts, or plays the principal role leading to the routine conclusion of contracts, on behalf of the sending entity in the host country can create a dependent agent permanent establishment for the sending entity there, exposing it to host-country corporate tax on the profits attributable to that PE under the AOA framework, regardless of how the secondment recharge itself is priced. This risk is entirely independent of, and additional to, the transfer pricing exposure on the recharge, and groups frequently focus on one while overlooking the other.
The Fixed Place of Business Risk
Beyond dependent agency, a secondment can also create a fixed place of business PE where the seconded employee, working from the host entity's premises over a sustained period, is found to be carrying on the sending entity's own business there, rather than genuinely working for and under the direction of the host entity. Distinguishing a genuine service secondment from an arrangement that in substance places the sending entity's own business operations inside the host country requires a careful, fact-specific analysis of direction, control, and whose business risk the employee's work actually serves.
Structuring and Documenting the Secondment
A well-structured secondment agreement should specify clearly who directs and supervises the employee's day-to-day work, who bears the commercial risk and reward of the work performed, how the recharge is calculated and whether it includes a markup, and the expected duration of the arrangement, since duration itself is a relevant factor in both the PE analysis and in assessing whether the secondment is a genuine temporary service arrangement rather than a de facto permanent relocation of the sending entity's function to the host country.
Conclusion
Secondment structuring cannot be treated as a pure transfer pricing pricing exercise; the PE risk created by where the seconded employee actually works, who directs them, and what authority they exercise runs alongside the arm's length recharge question and needs its own independent analysis. Groups with material secondment volumes should review both exposures together as part of the same structuring exercise, rather than pricing the recharge correctly while leaving the PE question unexamined.
