Government

November 07, 2017

Regional headquarters of MNC’s exempted from taxes: CBDT


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CBDT

The Central Board of Direct Taxes (CBDT) exempted the multinational company’s (MNCs) from taxes under the rules of ‘Place of Effective Management (PoEM).

The concept of PoEM is an internationally recognized test for determining residence of a company incorporated in a foreign jurisdiction.

CBDT through a circular no. 06/2017, dated 24th January, 2017, said that functions such as payroll, accounting, human resources or routine banking by these headquarters will not lead to a PoEM in India.

However, the exemption is subject to a condition that regional headquarters should be functioning according to global policies of the parent entity and not be specific to any entity or group of entities.

Concerns were raised by various stakeholders; wherein, it was represented that, as per the CBDT guidelines, in cases of multinational companies with regional headquarter structure, PoEM maybe triggered merely on the grounds that certain employees having multi-country responsibility or oversight over operations in other countries of the region are working from India, leading to taxation in India of their income from operations outside India.

To address this concern, the CBDT by its Circular no. 25/2017 dated 23rd October, 2017 has clarified that so long as the regional headquarter operates for group companies in a region within the general and objective principles of global policy of the group laid down by the parent entity in the field of pay roll functions, accounting, human resource functions, IT infrastructure and network platforms, supply chain functions and routine banking operational procedures, which are per se not specific to any entity or group of entities, this in itself, would not constitute a case of BoD (Board of Directors) of such group companies standing aside and consequently such activities of the regional headquarter in India alone will not be a basis for establishment of PoEM for such group companies.

Furthermore, it has also been clarified that if the above clarification is found to be used for abusive or aggressive tax planning, then the provisions of General Anti-Avoidance Rules may come into play.

Please find attached the PDF for more information.

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