Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘Place of effective management’

OECD: Tax Treaties, PE and COVID -19

The OECD provided this guidance in April, 2020, although the PE issue remains in many countries due to the COVID-19 crisis.  The guidance revisits OECD PE guidelines and commentary, and also represents opportunities to revisit potential PE issues for employees working from home as companies adopt regional and global work from home policies.

The document highlights the fact that temporary COVID-19 interruptions should not change a permanent establishment (PE) determination, although tax administrations should publish more guidance on their domestic PE laws and determinations.

Home offices, agency PE and construction site PE situations are addressed.  Summaries are also provided for place of effective management (POEM)/dual residence, income tax considerations for cross-border workers, and treaty residence issues.

The guidance is a valuable read, especially as countries are now starting to address these issues with more focus.  The diminished fiscal growth may also change the direction of penalty abatement, especially in areas that may subject to interpretation.

Taiwan’s new rules: CFC/Place of effective management

Taiwan’s recent amendments to its Income Tax Act provides rules for determination re: Controlled Foreign Corporations (CFC’s) and, most importantly, guidelines for determination of a company’s place of effective management (PEM) in Taiwan.

The PEM rules are becoming more important as MNE’s are arranging board meetings and making strategic directions in locations around the world, and not restricted to an entity’s country of incorporation.  Not restricted to Taiwan, PEM rules should be a strategic focus as its importance is significant, with similar rules being enacted in other countries.  

All MNE’s conducting business in Taiwan should be knowledgeable about these changes going forward, and planning accordingly.

EY’s Global Alert provides details of this development.

Click to access 2016G_02129-161Gbl_TW%20issues%20final%20regs%20on%20cfc%20rules%20and%20place%20of%20effective%20mgmt.pdf

Place of effective management: India’s creativity anew

India’s Ministry of Finance has issued draft guiding principles for determining the place of effective management (POEM).  The Finance Act of 2015 contained provisions providing for the significant change in determining POEM, to be effective April 2016.  The guidelines have a comment period until 2 January 2016; a link to the guidelines is provided:

Click to access POEM-note-for-uploading.pdf

The guidelines present subjective determinations of determining POEM based on substance over form and a recurring annual test.  There are presumptions, such as location for a majority of Board meetings, with exceptions based on facts and circumstances.

As drafted, the new guidelines present increased uncertainty for multinationals having any operations or services with Indian residents, thus this latest report should merit high priority due to the April 2016 effective date, as well as brief period provided for comments.



India’s 2015 Budget introduction

The 2015 Indian Budget has been recently presented, with highlights referenced in a link for the PwC Tax Insights article.

Click to access pwc-india-budget-2015-defers-gaar-addresses-offshore-transfers.pdf

Key points:

  • GAAR deferment until 1 April 2017.
  • Clarification” of rules addressing offshore share transfers, including reporting requirements.
  • 5% reduction in corporate income tax rate (30% to 25%), phased in over 4 years, after current year 2% surcharge increase.  
  • “Place of effective management” concept, accepted by the OECD, is introduced, noting that a foreign company will be resident in India if its place of effective management is in India at any time during the year.  Guiding principles are to be issued.
  • Tax rate for royalty/technical services reduced to 10%.

The GAAR deferment is especially welcome, hopefully adding more certainty and objective determination upon final implementation.  The rate reductions and additional clarification for offshore share transfers also are positive signs for tax reform, although offset by application of a “place of effective management” concept that will hopefully be addressed simply and objectively without enduring years of appeals to obtain a definitive conclusion.

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