India not to unduly tax non resident firms |
The Central Board of Direct Taxes (CBDT) will issue detailed guidelines to ensure that Non Resident companies holding a board meeting or two in India do not get any tax demands on their global income on account of New Delhi`s new wider definition of a resident company. The new definition of tax residence introduced in Finance Bill 2015 was primarily aimed at preventing companies incorporated in India from escaping taxes on their worldwide income by holding one or two board meetings abroad and claim non-resident status. Such escape from tax domicile status was possible because the existing definition of a resident company required its control and management to be wholly in India throughout the financial year. The Finance Bill brought within the definition of tax residence any company, the `place of effective management` of which was in India at any time of the relevant financial year. Such place of effective management includes a place from where the key management and commercial decisions necessary for running the company are, in substance, made. This raised fears that non-resident multinational companies that wish to hold a board meeting here to showcase the country`s business potential to its stakeholders might come under India`s definition of a tax resident. If that happens, the global income of such company would become taxable here. Unlike countries like the US, India levies tax on the worldwide income of only resident companies.
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