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Place of Effective Management

Recommendations on Guidelines to be issued

This paper attempts to provide recommendations which could be considered in the guidelines to be issued for interpreting and application of PoEM in determining the tax residence of a foreign company.

One of the most important changes introduced by the Finance Act, 2015 (FA 2015) is the concept of PoEM. PoEM is a new concept for determining the residency of a Company with effect from April 1, 2015. Under the erstwhile provisions, a Company would become resident in India if it was an Indian company; or during that year, the control and management of its affairs was situated wholly in India. As per the FA 2015, a company would become resident in India if is an Indian company or its Place of Effective Management (PoEM) in that year is in India. PoEM has been defined to mean ‘a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made’. The Memorandum to the Finance Bill has indicated that a set of guiding principles will be issued for the benefit of the taxpayers as well as, tax administration which will be useful in determination of PoEM. While we await the guidance on PoEM, this paper has been prepared, keeping in mind international perspective on PoEM and the intention of the Indian government in introducing the concept of PoEM. Through this paper Deloitte experts highlight some of the key considerations that must be taken into account by the Central Board of Direct Taxes prior to finalizing its guidelines.

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