CBDT Issues Draft Guidelines For Determination Of ‘Place Of Effective Management'

India has a 'residence' as well as 'source' based taxation. The criterion for determination of residential status of a company was recently amended by the Finance Act, 2015 with effect from 1 April 2015. Prior to the amendment, a company was considered as a resident in India in a year (1 April – 31 March), if it was an Indian company or if in that year, its 'control and management' was situated wholly in India. This allowed opportunities for companies to artificially escape the residential status under these provisions by shifting insignificant or isolated events related with 'control and management' outside India. Hence, to curb tax avoidance while controlling a foreign company from India, this test was amended to provide that a company would be considered as a resident in India in any year if it is an Indian company or if its 'place of effective management' (POEM) in that year is in India.