New Delhi, January 24, 2017

The Central Board of Direct Taxes (CBDT) has come up with the guiding principles for determination of place of effective management (PoEM) of a company.

This in effect has belied expectations of several tax experts who felt that the Government may in the upcoming budget do away with PoEM while introducing the concept of controlled foreign corporations.

Reacting to the latest CBDT move, Girish Vanvari, National Head of Tax, KPMG in India, said that the much awaited PoEM guidelines released today stresses on substance over form.

“It attempts to differentiate between shareholder control, Management control and routine decisions. Whilst the guidelines are comprehensive, it is subjective on substance and can be challenged for interpretation in many places”, Vanvari said. Further another issue to be considered is as how would one comply with these guidelines are issued only now especially “since PoEM is effective from April 1, 2016 and we are already ten months down the line".

This certainly merits deferment of PoEM by a year to April 1, 2017 else this retrospective application could lead to confusion, he added..

Rakesh Nangia, Managing Partner, Nangia & Co, a CA firm, said that it was being speculated that Budget would defer the implementation of PoEM by another year and provide relief to the MNCs.

“CBDT has cleared the air by issuing the final guidelines for determining the Place of Effective Management (“PoEM”) of a Company in India. Now the government has closed the tax avoidance opportunities for companies who sought to artificially escape the residential status by shifting insignificant or isolated events related with control and management outside India," Nangia said..

This move just ahead of the budget, shows government’s conviction to set the rule book right for the tax officer to catch hold of those trying to avoid taxes in India by playing around with their residential status. “The guidelines are quite exhaustive and deal with majority of the questions of the companies, including the issue that companies may constitute multiple PoEMs”, Nangia added.

[The Hindu Business Line]