India: “Place of effective management” guidelines | KPMG | GLOBAL

India: “Place of effective management” clarifying guidelines

India: “Place of effective management” guidelines

The KPMG member firm in India has prepared reports about the following tax developments (read more at the hyperlinks provided below).

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  • “Place of effective management” guidelines: The Finance Act, 2015 introduced the concept of “place of effective management” and in January 2017, the Central Board of Direct Taxes (CBDT) issued guiding principles for determining a company’s “place of effective management.” Subsequently, concerns were raised that under these guidelines, the rules for “place of effective management” could be triggered for multinational companies with a regional headquarter structure merely because certain employees with multi-country responsibility or oversight over the operations in other countries within the region were working from India and consequently, their income from operations outside India could be subject to tax in India. The CBDT recently issued a circular to clarify as long as the regional headquarter operates for subsidiaries / group companies in a region, within the general and objective principles of global policy of the group as set forth by the parent company, and not being specific to any entity or group of entities, these activities of the regional headquarter in India alone would not constitute a basis for establishing the “place of effective management” for such subsidiaries / group companies. Read an October 2017 report [PDF 505 KB]
  • Method of valuation if the statute is unambiguous: The Supreme Court of India held that if a statute is unambiguous, a taxpayer cannot contend that a method that is favourable to the taxpayer must be adopted. Thus, the Assessing Officer was correct in valuing the land and building by referring to a departmental appraiser to value the property. The case is: Bimal Kishore Paliwal & Ors. Read an October 2017 report [PDF 411 KB]
  • “Deemed dividend” not taxable to loan recipient: The Supreme Court of India agreed with a decision of the Delhi High Court that a “deemed dividend” would not be taxable in the hands of a loan recipient if that party was not a shareholder of the lender company. The deemed dividend, however, would be taxable in the hands of common shareholders having substantial interest in both entities. The case is: Madhur Housing and Development Company. Read an October 2017 report [PDF 528 KB]

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