The EPFO, in a recent circular, requested its regional offices to coordinate with the Foreigners’ Regional Registration Offices (FRRO) and obtain a list of foreign nationals employed in the establishments of their respective jurisdictions. The regional offices have, in turn, been asked to reconcile the data with the monthly returns filed by employers and take suitable action where there is non-compliance.
The FRRO monitors and keeps records of all foreign nationals visiting India. All foreign nationals coming to India on business or employment visa valid for more than 180 days are required to get registered with the FRRO within 14 days of arrival. The employers are also required to file monthly returns in Form IW-1 to PF offices providing details of employees qualifying as international workers.
Thus, by obtaining data from the FRROs, the regional provident fund offices will have another source to identify foreign nationals working in India and ensure there is complete compliance. Under the PF law, an employer is required to contribute 24% of an employee’s monthly pay towards provident fund. However, if international workers are from a country with which India has an effective social security agreement, they are not required to contribute towards PF. In such a case, a certificate of coverage will be required from the home country’s social security authorities certifying that they are covered in their respective home country’s social security schemes.
At present, India has effective social security agreements only with nine countries — Belgium, Germany, Switzerland, Denmark, Luxembourg, France, South Korea, the Netherlands and Hungary. Such coordination and reconciliation of data by provident fund offices and FRROs will help identify cases of provident fund non-compliance more effectively and efficiently.
However, this review is likely to lead to more audits and litigation on the coverage of certain foreign nationals as international workers under the PF law. For example, where an Indian entity hires an overseas entity for technical consultancy and the overseas entity sends its employees for short duration to India, in such a case, if the Indian entity has sponsored the visas of the employees, PF authorities may seek coverage of these employees considering the Indian entity as the ‘principal employer’.
Another similar example that could lead to litigation is where the overseas entity sends its employees on short-term assignments to the Indian affiliate. Regional offices are asked to forward a quarterly progress report of the review to the head office. The first report is due in the first week of July for the quarter ending June 30, 2014.
This is one of the many steps being taken by the EPFO to enforce compliance. Some of the other planned steps are allocation of a universal provident fund number, which will not change even if there is change in employment and launch of new software to identify cases where there is delay in deposit of provident fund contributions. The EPFO has clearly become more vigilant in recent times and is taking various initiatives to improve the oversight of compliance specifically for international workers.
The writer is senior tax professional, EY. Views expressed are personal