Place of Effective Management as a Treaty Tie-breaker Rule: Historical Evolution, Challenges, and Future Perspectives

This article revisits the place of effective management (POEM) as a treaty tie-breaker rule for resolving cases of dual corporate tax residence under double tax treaties. The POEM is historically embedded in Article 4(3) of the OECD Model Tax Convention and has served as a pragmatic, substance-over-form test focused on where substantive managerial decisions are made. However, the 2017 update replaced it with a mutual agreement procedure (MAP) thereby delegating residence determination to bilateral negotiations. While a MAP offers flexibility, it introduces uncertainty, administrative burdens, and the risk of double taxation when no agreement is reached.The article examines the POEM’s historical development, its interpretation across jurisdictions, and challenges posed by digitalization, remote work, and fragmented management. Particular attention is focused on the ambiguity between strategic and operational control, the mobility of key decision-makers, and inconsistent application of the POEM’s criteria. The article proposes a revised framework that reinstates it as the primary tie-breaker rule supported by a structured MAP as a fallback mechanism. A refined definition emphasizing strategic decision making supplemented by clearer OECD Commentary is recommended to enhance legal certainty and reflect economic substance. Rather than abandoning the POEM, the article advocates for its modernization to ensure continued relevance in a mobile and digital economy.