The document outlines draft guidelines for determining a company's place of effective management (POEM) under Indian tax law. It provides 9 primary factors for consideration, including the location of board meetings, senior management decision making, and the company's head office. It notes that no single factor is decisive, and the determination requires analyzing activities over time based on facts and circumstances. If POEM is determined to be both in and outside India, it will be presumed to be in India if mainly located there.

1. Draft guidelines issued by CBDT for
determining place of effective management
Section6(3) of Income tax act, 1961 was amended by Finance Act, 2015,wherein now by 1st
April 2016 a
company would said to be resident in India, in any previous year. if it would be complying with following two
conditions –
I. It is an Indian Company; or
II. Its POEM in that year is in India.
Now, the question is POEM? For the purpose of amended section’s clause, POEM means a place where key
management and commercialdecisions that are necessaryfor the conduct of the business of an entity as a
whole are, in substance, made. POEM is an internationally recognisedtest for determination of residence of a
company incorporated in a foreign jurisdiction. Most of the tax treaties entered by India recognises this concept
to decide whether a company incorporated in a foreign state would be subject to taxation or not in India or
foreignstate, in simple words avoidance of double taxation.
Finance Act, 2015 has issued explanatory statements that guidelines to determine POEM will be issued to
benefitboth side of tax system, tax payer as well tax authorities.
 Guiding principles to determine POEM, which are proposedto be issued mentions the following objects:
I. A company shall be said to be engaged in “active business outsideIndia” ABOI.
if passive income is < 50% of its total income and, -
i) <50% of its total assets are situated in India.
ii) <50% of total no. of employeesare situated in India or resident in India &
iii) The payroll expenses incurred on such employeesis less than 50% of its total payroll expenses.
II. Passive Incomeof a company shall be aggregate of,-
i) Income from transactions entered into with Associated enterprises;&
ii) Income by way of royalty, dividend, capital gains, interest or rental income.
III. Senior Management means the personor persons responsiblefordeveloping and formulating key
strategies & policies forthe company and for ensuring and overseeing the executionand implementation
of those strategies on regular & ongoing basis.
Designations may vary, these persons include
i) Managing Director or CEO;
ii) Financial directoror CFO;
iii) Chief operating officer;or
iv) heads of various divisions or departments.
IV. The POEM conceptis one of the substance over form and POEM will be determined each year like
residence status cause an entity may have multiple places for management but for effective management
there is only one place at any point of time. The processto determine POEM strongly based on the factor
whether the entity is having active business outside India or not.
V. The POEM in case of a company engaged in Active business outside India (ABOI)shall be presumed to
be outside India if the majority meetings of the board of directors of the company are held outside India.
VI. If on the basis of facts & circumstances it is established that the board of directors of the company are
setting aside and not exercising their powers of management and such powers are being exercised by
either the holding company or any other person (s) residentin India, the POEM shall be taken to be India.

2. VII. To determine ABOI of a company, the average data of previous year and preceding 2 years to previous
year shall be considered orin case if the business was in existence for a shorter period then that period
would be considered.
VIII. In case of companies which are not engaged in ABOI,the determination of POEM shall be 2 step process,
like: -
i) Identificationor ascertaining the personor persons responsiblefortaking key management&
commercialdecisions forthe conductof company’s business as a whole.
ii) Determination of place where these decision (in (I) above ) are being made.
IX. The place where these decisions are made would be more important than the place where these decisions
are being implemented,because POEMis concept of substance over form. Therefore,substance would be
more conclusive rather than the form.
 Primary guiding principles for determining the POEM: -
i) The location where the company’s board meetand makes decisionregularly may be the place where
effective management, Provided the board
(1)Retains & exercises its authority to govern the company; and
(2)Does,in substance,make the key management & commercialdecisions necessaryfor conduct of
the business operations of the company as whole.
It may be mentioned that mere formal holding of board meetings at a place would by itself not be
conclusive for determination of POEM being located at that place. If the key decisions by directors
are taken at a place other than where formal meetings are held then such other place would be
relevant for POEM.
Example:where the board meetings are held in a location distinct from the place where head office
of the company is located or such location is unconnected with the place where predominant activity
of the company is being carried out. If a board has de facto delegated the authority to make the key
management and commercialdecisions forthe company to the senior management or any other
personincluding a shareholder and does nothing more than routinely ratifying the decisions that
have beenmade, the companies place of effective management will ordinarily be the place where
these senior managers or other persons make those decisions.
ii) A company’s board may delegate some or all of its authority to one or more committeessuch as an
executive committee consisting of key members ofsenior management. In these situations, the
locations where the members of executive committee are based and where that committee develops
and formulates the key strategies and policies formere formal approval by the full board will oftenbe
considered to be the company’s place of effective management.
The delegation of authority may be either de jure (by means of a formal resolution or shareholders
agreement) or de facto (based upon actual conduct of the board and executive committee).
iii) The location of a company’s head office will be a very important factor in the determination of the
company’s POEM because it often represents the place where key company decisions are made.
The following points need to be consideredfordetermining the location of the head office of the
company: -
(1)If the company’s senior management and their support staff are based in a single location and that
location is held out to public as the company’s principal place of business or headquarters, then that
location is the place where the head office is located.
(2)If the company is more decentralised,then the company’s head office would be the location where
these senior managers, -
 Predominantly based;or
 Normally return to following travels to other locations; or
 Meet for formulating & deciding the key strategies and policies forthe company as whole
(3)Member of the senior management may operate from differentlocations on a more or less
permanent basis and members mayparticipate in various meeting via telephone or video
conferencing rather than by being physically presentat the meetings in a particular location. In such

3. situation the head officenormally be the location, if any, where the highest level of management &
their supportstaff are located.
(4)In case, where senior management is so decentralized that it’s not possible to determine the
company’s head office with a reasonable degree of certainty, the location of the company’s head
office would not much be of relevance in determining that company’s place of effective management.
iv) For determination of POEM, the place where junior level management & middle level management
operates for routine work operation shall not be relevant.
v) The use of modern technologyimpacts the POEM in many ways, it is no longer necessaryfor the
persons taking decisionto be physically present at a particular location. Therefore,physicallocations of
board meeting or committee meetings or executive meetings may not be location where the key
decisions in substance being made. In such cases the place where directors or the persons taking the
decisions or majority of them usually reside may also be a relevant factor.
 If the primary factors do not lead to clear identification of POEM then the following secondaryfactors can be
considered: -
(1)Place where main & substantial activity of the company is carried out; or
(2)Place where the accounting records of the company are kept.
 The determination of POEM to be based on all relevant facts related to the management and control of the
company, and is not to be determined on the basis of isolated facts that by itself do establish effective
management, as like these examples:
 The fact that a foreigncompany is completelyowned by an Indian company will not be conclusive
evidence that the conditions for establishing POEM in India have been satisfied.
 The fact that one or some directors of a foreigncompany reside in India will not be conclusive evidence
that the condition for establishing POEM in India have beensatisfied.
 The fact of, local management being situated in India in respectof activities carried out by a foreign
company in India will not, by itself, be conclusive evidence that POEM establishmentcondition in India
have beensatisfied.
 The existence of support functions that are of auxiliary and preparatory in nature in India will not be
conclusive evidence to establish POEM in India.
 The above mentioned principles are for guidance only in respectof determination of POEM, no single
principle will be decisive itself.The above principles would not be seen with reference to any particular
moment in time rather activities performed overa period of time, during previous year, need to be considered.
 In other words, snapshot approach not to be followed.Further, based on the facts and circumstances if it is
determined that during previous year the POEM is in India and also outside India then POEM shall be
presumed to be in India if it has beenmainly in India.
 In case the assessing officerproposes to hold a company incorporated outside India, on the basis of POEM,
as being residentin India then any such finding shall be given by the assessing officerafterseeking prior
approval of the principal commissioneror commissioner, as the case may be in this regard. The principal
officershall provide an opportunity of being heard to the company before deciding the matter.