Place Of Effective Management - Revised Guidelines Issued: Inherent Subjectivity Still A Concern

• Indian tax authorities release final guiding principles for the determination of the 'place of effective management' of a foreign company.
• Provides clarity on application of 'active business outside India' test.
• Permanent Establishment in India will not automatically result in POEM in India for foreign company.
• Decisions on matters statutorily reserved for shareholders under company laws not relevant for determination of POEM. Some clarity on decisions reserved for shareholders under contract.
• Guidance on difference between operational decisions and key management and commercial decisions.
• Two-step approval process for initiation of proceedings to determine POEM.

Recently, on January 24, 2017, the Central Board of Direct Taxes ("CBDT") issued a circular¹ containing what appear to be the final guiding principles ("Revised Guidelines") to be taken into account during the determination of the 'place of effective management' ("POEM") of a