India: MNCs not tax liable for Routine Operations

November 28, 2017


The era of globalization has brought together the people to work jointly thereby benefiting each other by increasing transfer of knowledge and technology. This interdependence coupled with harmonization with the world statistical standards by the means of Multi-national Companies (hereinafter referred to as “MNCs”) has given the Indian economy a major boost in covering its path of development.

The Central Board of Direct Taxes (hereinafter referred to as “CBDT”) vide notification on 23rd October, 2017 brought a sigh of relief for the Multinational Companies operative in India. It laid down clarification related to guidelines for establishing ‘Place of Effective Management’ (hereinafter referred to as “PoEM”). Many MNCs raised their concerns after the issue of guiding principles for determination of PoEM dated 24th January, 2017 seeking elucidation on the aspect of consideration of their regional headquarters in India as PoEM.

The CBDT explained that where the Board of Directors of the company are standing aside and not exercising their powers of management and such powers are being exercised by either the holding company or any other person(s) resident in India, then the PoEM shall be considered to be in India.

The clarification guidelines clearly state that the Regional Headquarter operating for subsidiaries/ group companies in a region complying as per the general and objective principles of global policy of the group laid down by the parent entity conducting routine functions would not per se be a basis for establishment of PoEM for such companies. The functions of routine nature include Pay roll functions, Accounting, HR functions, IT infrastructure and network platforms, Supply chain functions, routine banking operational procedures, and not being specific to any entity or group of entities.


The progressive effort of the CBDT in spelling out the polices relating to PoEM has led to better understanding of the taxation aspect in this regard. It motivates the MNCs to carry out functions of routine nature without the threat of being scanned under the tax ambit.

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