United States

New rules for determining taxable presence in India delayed

India postpones new rules for determining place of management


In its 2015 budget act, India redefined the standard used to determine tax residency, basing it on the situs of effective management. Prior to this change, a company was resident in India if it was managed or controlled wholly in India. Under the 2015 standards, a company is resident in India if:

  1.  It is incorporated in India, or
  2. Its place of effective management (POEM) for that year was in India

POEM is the country where key management and commercial decisions necessary for the conduct of business of an entity as a whole are, in substance, made. The Indian government has postponed application of the 2015 amendments to April 1, 2017. In addition, earlier this year the government issued draft guidelines to determine the POEM of a foreign company. These guidelines were primilarily based on whether the company was engaged in ‘active business’ outside of India. It is now expected that stewardship activities will also be included in the next draft of the guidelines to determine if a taxpayer has a POEM in India. Stewardship activities refer to activities carried out by a holding company in relation to its subsidiaries for the protection of its ownership interest in the subsidiaries.

Resident Indian companies are taxed on their worldwide income and are subject to withholding tax, return filing and other compliance requirements such as alternative minimum taxes and transfer pricing rules. Therefore, the new rules could result in additional and possibly substantial filing and taxpaying burdens in India.


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