PoEM Rules: "Place Your Management Effectively Now"

NEW DELHI, February 16, 2017 /PRNewswire/ --

The Finance Act 2015 had proposed to amend the test of residence for foreign companies to provide that a company would be treated as resident in India if its place of effective management in the previous year is in India. Earlier, section 6 of the Income-tax Act, 1961 (the Act) referred that, a company is considered to be an Indian resident company, only if it is incorporated in India or the control and management of its affairs is situated wholly in India.

     (Photo: http://mma.prnewswire.com/media/468430/PoEM_Tax_India_Infographic.jpg )

As per the amendment, a company shall be considered an Indian resident company if:

- It is incorporated in India; or

- Place of effective management, in that year, is in India.

The main objective of introducing PoEM, was to ensure that the companies incorporated outside India, but controlled and managed from India do not escape taxation in India. It also brings in the concept of residency of corporates in line with internationally-accepted principles said Neeraj Bhagat, founder of Neeraj Bhagat & Co, an Indian Chartered Accountancy firm serving various MNC'S from across the globe .

Tax payers likely to be affected by PoEM 

• Foreign companies having Indian branches
• Foreign subsidiaries of Indian parents
• Foreign company having global reporting structure with an India connection
• Regional headquarters

Activities likely to trigger PoEM 

• Board meeting in India
• Decisions taken by a Director, Executive Committee, Key Management Personnel in India Delegation of authority from India
• Regional roles e.g. Group CEOs / CFOs sitting in India and approving decisions for foreign affiliates
• Functions carried on in India e.g. Global Procurement Cell of foreign companies

About the author:  

Neeraj Bhagat is a member of the Institute of Chartered Accountants of India (ICAI) since 1997. He is also an Associate member of Association of International Accountants, United Kingdom.  He is founder of Neeraj Bhagat & Co, an Indian Chartered Accountancy firm serving various MNC'S from across the globe. Neeraj Bhagat & Co. has its offices at New Delhi, Gurgaon and Mumbai. They are part of Allinial Global Accounting Association which is one of the World's Top 10 in accounting associations.

For more information please log on to:  http://www.neerajbhagat.com or email [email protected]