The OECD's Place of Effective Management (PoEM) framework is being implemented in India to determine the residency of companies with global operations that may be using their residential status to avoid paying taxes in India.

"The intent is not to target Indian multinationals which are engaged in business activity outside India, but instead to target shell companies and companies created for retaining income outside India when real control and management of affairs is located in India," comments Pankaj Dave, Senior Partner at B.M. Chatrath & Co.

Definition: Place of Effective Management

The PoEM rules came into force in India on 1st April 2015 but the Central Board of Direct Taxes (CBDT) has only recently issued its own guidelines to test the residential status of a foreign company for tax purposes.

The rules establish the criteria to determine a company's place of effective management in those situations where it has a presence in multiple jurisdictions but may be using their residential status to avoid paying taxes in India. When a company has a presence in different jurisdictions, the company will for treaty purposes, be resident in the jurisdiction in which its place of effective management is located. This test is suggested in the OECD model tax treaty's tie-breaker rule to determine the residential status of a corporation.

Read the full article:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.