The new tax residency rule for foreign companies based on the concept of Place of Effective Management (‘PoEM’) has been effective since 1st April, 2017, i.e., Assessment Year 2017-18 onwards.
Foreign Multinational Companies (MNCs) often establish regional headquarter structure to centralize administrative and management functions across that region. Such headquarter have premises, local staff and senior personnel responsible for the management of the business in that region.
In context of Foreign MNCs with regional headquarter structure in India, a query was raised as to whether PoEM may be triggered merely on the ground that certain employees having multi-country responsibility or oversight over the operations in other countries of the region are working from India, and consequently, their income from operations outside India may be taxed in India.
In this regard, the CBDT has clarified that Regional Headquarter would not create PoEM exposure for subsidiaries / group companies in a region so long as it operates within global policy set by parent entity and activities are of routine nature.
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