The concept of ‘Place of Effective Management’ (PoEM) for deciding residency status of a company other than an Indian company has become effective from 1, April. 2017, i.e. Assessment Year 2017-18 onwards. POEM is an internationally recognized concept for determination of residency status of a company incorporated in a foreign jurisdiction.
The Central Board of Direct Taxes (CBDT) vide Circular No. 08 of 2017 dated 23-02-2017has clarified that the PoEM provisions shall not apply to a company having a turnover or gross receipts of Rs 50 crore or less in a financial year.
Concerns had been raised by the stakeholders that PoEM could be triggered in cases of certain multinational companies with regional headquarter (HQ) structure merely on the ground that certain employees having multi-country responsibility or oversight over the operations in other countries of the region are working from India.
Now, CBDT has clarified that so long as the Regional HQ operates for subsidiaries/ group companies in a region within the general and objective principles of global policy of the group in the field of Payroll functions, Accounting, HR functions, IT infrastructure and network platforms, Supply chain functions, Routine banking operational procedures, and not being specific to any entity or group of entities per se; it would, in itself, not constitute a case of BoD of companies standing aside and such activities of Regional Headquarter in India alone will not be a basis for establishment of PoEM for such subsidiaries/ group companies.
However, if the clarification is found to be used for abusive or aggressive tax planning, the provisions of General Anti-Avoidance Rule (GAAR) may be triggered.
Source : Taxmann