A Ltd a US company, owns and controls B limited its branch located in India.
B Limited owns and controls its branch C Limited located in Singapore
now, C limited also holds and controls D limited located in hongkong
Whether D limited is PRI
Determination of the residential status of a company
A company incorporated in India will always be considered as resident of India.
A company other than an Indian company (i.e., a foreign company) is said to be resident in India during a year, if its place of effective management, in that year, is in India.
Place of effective management (POEM) means a place where key management and commercial decision that are necessary for conduct of the business of an entity as a whole are in substance made.
The concept of POEM is effective from Assessment Year 2017-18. Therefore, the CBDT has recently issued the final guidelines for determination of POEM of a foreign company.
The final guidelines on POEM contain some unique features. One of the unique features is test of Active Business Outside India (ABOI). The guidelines prescribe that a company shall be said to engaged in ‘active business outside India’ if passive income is not more than 50% of its total income. Further, there are certain additional cumulative conditions to be satisfied regarding location of total assets, employees and payroll expenses.
The place of effective management in case of a company engaged in active business outside India shall be presumed to be outside India if the majority meetings of the board of directors of the company are held outside India.
In cases of companies other than those that are engaged in active business outside India, the determination of POEM would be a two stage process, namely:—
(i) First stage would be identification or ascertaining the person or persons who actually make the key management and commercial decision for conduct of the company’s business as a whole.
(ii) Second stage would be determination of place where these decisions are in fact being made.
However, it has been provided that the POEM guidelines shall not apply to a company having turnover or gross receipts of INR 50 crores or less in a financial year vide CIRCULAR NO.8, DATED 23-2-2017.
(To know more about POEM guidelines, read CIRCULAR NO.6, DATED 24-1-2017.)
Determination of the residential status of person other than an individual, HUF and company
Every person other than an individual, HUF and company is said to be resident in India during the year, if the control and management of its affairs for that year is located wholly or partly in India.
Incomes which are charged to tax in India
The following chart highlights the tax incidence in case of different persons:
Nature of incomeResidential statusROR (*)RNOR (*)NR (*)Income which accrues or arises in IndiaTaxedTaxedTaxedIncome which is deemed to accrue or arise in IndiaTaxedTaxedTaxedIncome which is received in IndiaTaxedTaxedTaxedIncome which is deemed to be received in IndiaTaxedTaxedTaxedIncome accruing outside India from a business controlled from India or from a profession set up in IndiaTaxedTaxedNot taxedIncome other than above (i.e., income which has no relation with India)TaxedNot taxedNot taxed
(*) ROR means resident and ordinarily resident.
RNOR means resident but not ordinarily resident.
NR means non-resident.
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