Can my foreign-incorporated company be treated as resident in India?
Yes, if its place of effective management is there. The test looks at where the key management and commercial decisions necessary for the conduct of the business as a whole are in substance made. Incorporation abroad, a foreign registered office and a foreign register do not answer it. If a finding is made, the company is resident for that year, which brings its worldwide income into charge along with the compliance obligations that attach to residence, rather than tax on what it earned in the country alone.
Do board meetings held abroad protect my company's residence?
They are evidence, not an answer. Where the board genuinely deliberates and decides, the place it meets carries real weight. Where the decisions have already been taken by someone else and the meeting records them, the location of the meeting carries very little, and the analysis follows the people who actually decided. What gets examined is the substance behind the minutes: who prepared the papers, who chose between the options, how long before the meeting the outcome was fixed, and whether anything was ever decided differently from what was proposed.
Who counts as key management for place of effective management?
The persons who in substance take the strategic and commercial decisions for the enterprise as a whole, typically the board, or whoever the board's function has in fact passed to. Three groups are often confused with them. Day-to-day operational management is not key management, because running the business is not the same as deciding what the business will do. Shareholders acting as shareholders are not either, though a shareholder who directs the company's commercial decisions may be. And a service provider who signs where instructed is evidence about someone else's control rather than a decision-maker.
What records show where decisions are actually made?
The records that help are the ordinary ones, made as things happened: board papers with the dates they were circulated, minutes showing options considered rather than conclusions ratified, delegations of authority, the approval trail on significant commitments, the correspondence in which alternatives were argued, and travel or attendance records placing people where the decisions were taken. A file assembled after a question arrives tends to contain descriptions of how the company is governed rather than evidence of how it was governed, and the difference is visible to anyone reading it.
What happens if two countries both treat the company as resident?
Dual residence is resolved, if at all, by the treaty between them. Many treaties now deal with a dual-resident company by having the two authorities agree its residence between themselves, rather than by an automatic test the company can apply for itself, and until they agree, treaty benefits may be unavailable. So a finding in one country does not simply displace residence in the other. In the meantime both systems can impose full compliance obligations, each on the whole of the company's income, which is the practical cost of leaving the question unresolved.
Can our company's residence change from one year to the next?
Yes. The test is applied for each year on that year's facts, so a company can be resident in one period and not in the next because the people who take its decisions have changed, or moved. A director relocating, a founder returning from abroad or a shift of authority to a regional head can each change the answer without anything in the constitution or the register altering. In India there is a second layer to check as well: a position settled for tax can still leave an exchange control question, and that is usually the one that stops money moving.
Is double taxation illegal?
It is legal. Two countries can each have a valid claim on the same income — one because the income arose there, the other because you live there — and nothing prohibits both from exercising it. What exists instead is relief: tax treaties allocate the claim, and domestic law gives a credit for foreign tax paid. The relief is not automatic, though. It is claimed on a return, and unclaimed relief is simply lost. See how double taxation is relieved.
Do I get credit for all of the foreign tax I paid?
Only up to your own country's tax on that same income, and only for tax you were legally obliged to pay. Two consequences follow. Living somewhere that taxes you more heavily than your residence country does leaves an excess that becomes a carryover rather than a refund. And withholding suffered above the treaty rate is not creditable — the route back to that money is a refund claim in the country that took it. See claiming the credit.
