Principios rectores para determinar el lugar de gestión efectiva (POEM) para empresas extranjeras | Ley del Impuesto sobre la Renta de 1961

Place of effective management (POEM) determines the place where management of the company is actually situated to determine the correct residential status of the company for Income tax purposes. As per amended Section 6(3) of Income Tax Act, a company shall be considered as resident if:

1. It is an Indian Company; or
2. Its place of effective Management in that year is in India

Foreign companies are divided into Active Foreign Company and Passive Foreign Company to determine their POEM. 

POEM is not something which can be defined by fixed guidelines. Facts of each case have to be checked to determine their POEM. The Income Tax department has specified certaining gilding principles to be considered while determining POEM. Therefore, While determining POEM, following points are to be kept in mind:

1. Principles to be considered for determine POEM

a. Location of Board Meeting

• Location where the Board of the Company meets and makes decisions may be considered as the place of effective management.
• However, the board must:
  • Retains and exercises its authority to govern the company; and  
  • Make key management and commercial decisions at Board meeting which are necessary for the business as a whole.

• Therefore, mere formal holding of board meetings at a place will not determine such a place as POEM. If the key decisions by the directors are taken at some place other than the place where formal meetings are held then such other place would be relevant for POEM. 

b. Delegation of Authority to take decision

• A company’s board may delegate some or all of its authority to one or the other person or committee. In such a  case, the location where such other persons or committees are based and formulate the key strategies will be considered as POEM of the company.
• E.g. A Board delegates the authority to make the key management and commercial decisions of the company to the senior management and the Board is merely involved in routinely ratifying the decisions taken by such senior Management. In this case, POEM of the company will be the place where these senior managers take the key decisions and not the location of where board meetings are held. 

c. Location of Head office

• The location of a company’s head office is an important factor because it often represents the place where key company decisions are made. 
• Location of the head office of the company can be determined by considering following points:

1. Company having single location: Location where the company’s senior management and their support staff are based and which is held out to the public as the company’s principal place of business or headquarters.
2. Company having more than one location: If company is having more than one locations, e.g., various members of senior management may operate at offices located in the various countries, then the company’s head office would be where these senior managers:
   1. are primarily or predominantly based; 
   2. normally return to following travel to other locations; or 
   3. meet when formulating or deciding key strategies and policies for the company as a whole.   

3. Company having more than one location permanently: If Senior management of a company operates from different locations on a permanent basis and the members participate through virtual mode rather than physically mode then the head office of the company will be the location where the highest level of management and their direct support staff are located.   

4. If senior management is so decentralized that it is not possible to determine the company’s head office then Location of head office will not of any relevance in determining POEM. In such case, other factors may be considered in determining POEM.

d. Physical location of meeting is not relevant

In case, persons taking decision are no longer required to be physically present at a particular location due to modern technology then the physical location of board meetings will not be the place where key decisions are in substance being made. 

In such cases, POEM will be the place where the directors or the persons taking the decisions or majority of them usually reside.

e.  Decision through Circular Resolution

• If a company takes decisions through circular resolution or round robin voting then POEM is to be determine by considering following factors:

1. frecuencia de dicha resolución;
2. Tipos de decisiones tomadas;
3. Dónde se encuentran las partes involucradas en dichas decisiones

• La ubicación de quien propone la decisión no será el único factor importante. Más bien, se determinará quién tiene la autoridad y quién ejerce la autoridad para tomar decisiones. El lugar donde se encuentre dicha persona será más importante.

f. Decisiones de los accionistas

1. Las decisiones de los accionistas no se consideran para el POEM

• Existen ciertos asuntos que son decididos únicamente por los accionistas según las facultades otorgadas por la ley de sociedades, tales como la venta de activos sustanciales de la empresa, la liquidación de la misma, etc.
• Estas decisiones afectan la existencia de la empresa o los derechos de los accionistas. Estas decisiones no se toman para llevar a cabo actividades comerciales ni desde una perspectiva de gestión o comercial. Por lo tanto, generalmente no son relevantes para la determinación de un POEM.

2. Decisiones de los accionistas que deben considerarse para el POEM

• Sin embargo, en ciertos casos, la participación de los accionistas puede convertirse en una gestión efectiva, por ejemplo, a través de acuerdos formales como pactos de accionistas, etc.
• En tal caso, la orientación del accionista se transforma en una usurpación y puede resultar en que la gestión efectiva sea ejercida por el accionista.

Por lo tanto, debe determinarse caso por caso si la participación del accionista resulta o no en una gestión efectiva.

g. Las decisiones rutinarias no son relevantes para el POEM

• La circular ha aclarado que las decisiones operativas rutinarias del día a día tomadas por la gerencia junior y media no son relevantes para determinar el POEM, tales como el nombramiento de gerentes, gerentes senior, reparaciones y mantenimiento, políticas de recursos humanos, etc.
• Son las decisiones clave de gestión y comerciales las que son relevantes para determinar el POEM, tales como la apertura de una nueva planta de fabricación, la interrupción de una línea de productos importante, etc.
• Si las decisiones rutinarias y las decisiones clave de gestión son tomadas por la misma persona, será necesario distinguir ambos tipos de decisiones y, posteriormente, evaluar el lugar donde se toman las decisiones clave de gestión y comerciales.

h. Principios residuales para determinar el POEM si los factores anteriores no lo identifican

Si el POEM no puede determinarse mediante los principios mencionados anteriormente, se pueden considerar los siguientes factores secundarios:

1. Lugar donde se lleva a cabo la actividad principal y sustancial de la empresa; o
2. Lugar donde se guardan los registros contables de la empresa.

2. Cómo aplicar los principios rectores para determinar el POEM

• Se ha aclarado que el POEM se determina en función de todos los hechos relevantes relacionados con la gestión o el control de la empresa. Ninguno de los principios mencionados anteriormente puede determinar el POEM de forma aislada.
• P. ej.
  • Si una empresa extranjera es propiedad total de una empresa india, el simple hecho de que su sociedad matriz esté situada en la India no es prueba concluyente para establecer que el POEM se encuentra en la India.
  • Del mismo modo, si el establecimiento permanente de una entidad extranjera está situado en la India, esto por sí solo no sería prueba concluyente para determinar que el POEM tiene su sede en la India;

Por lo tanto, todos los principios rectores anteriores deben verificarse colectivamente para determinar el POEM de cualquier entidad.

• Además, estos principios no deben verificarse en un momento determinado. Más bien, deben considerarse las actividades realizadas durante un período de tiempo. Por lo tanto, no se debe adoptar un enfoque de "instantánea".
• Asimismo, si según los hechos y circunstancias se determina que durante el año anterior el POEM se encuentra en la India y también fuera de la India, se presumirá que el POEM está en la India si ha estado principalmente/predominantemente en la India.

3. Invocación del POEM

• Si algún funcionario evaluador desea iniciar un procedimiento para considerar a una empresa constituida fuera de la India como residente en la India, sobre la base de su POEM, deberá solicitar la aprobación previa del Comisionado Principal o del Comisionado.

• Además, si el funcionario evaluador propone considerar a una empresa constituida fuera de la India como residente en la India sobre la base de su POEM, dicha conclusión debe ser aprobada previamente por un colegio de tres miembros compuesto por los Comisionados Principales o los Comisionados. Asimismo, se deberá dar a la empresa la oportunidad de ser escuchada antes de emitir cualquier directriz al respecto.

4. Illustrations

• The Circular has shared few illustrations to give an idea that how these guiding principles are to be used for determining POEM.
• E.g. 

FactsStatus1. Company A is incorporated in Country X and is 100% subsidiary of Indian Company. 
2. All assets of the company are located in Country X.
3. All employees are also based in Country X
4. 30% of the total income is from transactions where purchase is made from associate enterprises and sales are also made to associate enterprises.
5. 10% of total Income is from the royalty1. Since less than 50% of the total income of the company is from “Passive Income” therefore, the company is engaged in “Active business outside India”1. In Above mentioned facts, if 3 out of 50 employees are based out in India and their salary is INR 3 Crores out of total salary cost of INR 5 Crores.1. Company A Co. is not engaged in active business outside India as more than 50% of the total payroll expenditure is pertaining to employees based out in India1. If in First case, all directors are Indian residents and 3 Board meetings out of 5 are held outside India.1. Since majority of Board meetings are held outside India then POEM shall be considered outside India

5. Conclusión

Change in principles of determining residential status from “Wholly control and Management” to “Effective Place of Management” has changed the residential status of most of the companies such as Investment companies established overseas by Indian Companies to avoid residential status.

Determination of POEM is completely based on Facts and circumstances of each case and every company is required to seek a professional opinion to determine its POEM as change in residential status can have major impact on tax liabilities.