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    Assignment 1 International

    Uploaded by

    Shabnam Mahajan

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    © All Rights Reserved
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    Assignment 1 International

    Uploaded by

    Shabnam Mahajan
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    assignment 1 international

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    Assignment 1 International

    Uploaded by

    Shabnam Mahajan

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    © All Rights Reserved
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    ASSIGNMENT NUMBER 1

    B. Com. LL.B (Hons.) (Taxation Law)                     International Taxation (Hons 6) LLBL486


    BATCH 1 & 2                                       Marks: 20
    Timing: 1 hour

    Question 1
    Explain the concept of ABOI. 
    Analyze the following situation: If a company’s BOD is situated outside India, but the key
    management and commercial decisions are taken by a person named “A” who is situated in India. In
    such a case, if company does not fulfill ABOI test, where will be the POEM of company?
    Answer 
    A company is considered to have Active Business Outside India (ABOI) when 
    (a) its passive income (understood as an aggregation of sale and purchase transactions between
    related parties, royalty, interest, dividend, capital gains) is less than 50% of its total income; 
    (b) the number of employees in India, value of assets in India and payroll expenses relating to Indian
    employees is less than fifty percent of the company’s total employees, assets and payroll expenses,
    respectively. 
    The determination of these factors is based on an average of the data pertaining to the relevant
    financial year and two previous years. A company having an active business outside India is
    presumed to be non-resident as long as majority of its board meetings are held abroad. For all other
    companies, the investigation of residence would involve identification of 
     Persons who are responsible for management decisions
     Place where decisions are actually made.

    The circular enumerates various factors and situations but signs off saying that the principles are
    only for guidance, leaving the entire law and circular subjected to varying interpretation. Where all
    factors are inconclusive, place of main and substantial activity and place where accounting records
    are maintained can be considered. This is one of the instances where factors are mentioned without
    reference to an internal hierarchy. If POEM is found to be in more than one country, it would be
    considered to be in India if it is mainly /predominantly in India. This leads to uncertainty for
    taxpayers and potentially more claims of dual residency under India’s tax treaties. Finally, if POEM is
    in 2 jurisdictions, India would assume that POEM is located in India, including with treaty Partners,
    thereby disregarding the treaty provisions.
     Principles for determination of Place of Effective Management (POEM) of a Company
    Section 6(3) of the Income-tax Act, 1961 (the Act), prior to its amendment by the Finance Act, 2015,
    provided that a company is said to be resident in India in any previous year, if it is an Indian company
    or if during that year, the control and management of its affairs is situated wholly in India.

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