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TMI BlogDraft Guiding Principles for determination of Place of Effective Management (POEM) of a CompanyX X X X Extracts X X X X X X X X Extracts X X X X ..... n India. This allowed tax avoidance 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. To address these concerns, the existing provisions of section 6(3) of the Income-tax Act, 1961 were amended vide Finance Act, 201 5, with effect from 1st April, 2016 to provide that a company is said to be resident in India in any previous year, if- (i) it is an Indian company; or (ii) its place of effective management in that year is in India . 2. For the purposes of this clause, place of effective management means a place where key management and commercial decisions that are necessary for the cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company s head office is not necessarily the same as the place where the majority of its employees work or where its board typically meets; (c) Passive income of a company shall be aggregate of ,- (i) incomefrom the transactions where both the purchase and sale of goods is from / to its associated enterprises; and (ii) income by way of royalty, dividend, capital gains, interest or rental income; (d) Senior Management in respect of a company means the person or persons who are generally responsible for developing and formulating key strategies and policies for the company and for ensuring or overseeing the execution and implementation of those strategies on a regular and on-going basis. While designation may vary, these per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determining whether the company is engaged in active business outside India the average of the data of the previous year and two years prior to that shall be taken into account. In case the company has been in existence for a shorter period, then data of such period shall be considered. 8. In cases of companies other than those that are engaged in active business outside India referred to in para 7 the determination of POEM would be a two stage process , namely:- (i) . First stage would be identification or ascertaining the person or persons who actually make the key management and commercial decision for conduct of the company s business as a whole. (ii) . Second stage would be determination of place where these decisions are in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther person including a shareholder and does nothing more than routinely ratifying the decisions that have been made, the company s place of effective management will ordinarily be the place where these senior managersor the other person make those decisions. (b) A company s board may delegate some or all of its authority to one or more committees such as an executive committee consisting of key members of senior management. In these situations, the location where the members of the executive committee are based and where that committee develops and formulates the key strategies and policies for mere formal approval by the full board will often be considered to be the company s place of effective management. The delegation of authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation. In such situation the head office would normally be the location, if any, where the highest level of management (for example, the Managing Director and Financial Director) and their direct support staff are located. In situations where the senior management is so decentralised that it is not possible to determine the company s head office with a reasonable degree of certainty, the location of a company s head office would not be of much relevance in determining that company s place of effective management. (d) It may be clarified that day to day routine operational decisions undertaken by junior and middle management shall not be relevant for the purpose of determination of POEM. (e) The use of modern technology impacts t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of activities carried out by a foreign company in India will not , by itself, be conclusive evidence that the conditions for establishing PoEM have been satisfied. iv. The existence in India of support functions that are preparatory and auxiliary in character will not be conclusive evidence that the conditions for establishing PoEM in India have been satisfied. 10. It is reiterated that the above principles for determining the PoEM are for guidance only. No single principle will be decisive in itself. The above principles are not to be seen with reference to any particular moment in time rather activities performed over a period of time, during the previous year, need to be considered. In other words a snapshot approach i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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