HOW POEM IMPACTS FOREIGN COMPANIES?
Explore the profound impact of POEM on foreign companies. Gain crucial insights into global taxation strategies for international businesses.
Explore the profound impact of POEM on foreign companies. Gain crucial insights into global taxation strategies for international businesses.
(Place of Effective Management) POEM Impacts Foreign Companies those may be trying to evade taxes by merely having incorporation or a set of directors operating from outside India while in substance it is carrying our activities in India and earning income which should be subject to tax in India.
POEM is the concept related to the determination of residential status of a Company in India. As per Section-6(3) of Indian Income Tax Act, a company is said to be Resident in India in any previous year, if:
I) it is an Indian company; or
II) Its place of effective management (POEM), in that year, is in India.
To know the definition of Indian Company, we need to know:
So, the companies incorporated in India or declared to be Indian companies for purposes of the ITA would be Resident in India.
POEM was introduced in Indian Income Tax Act w.e.f. 1.4.2017 in place of earlier condition of ‘control and management of affairs’ being wholly situated in India. The defect in the existing conditions was that foreign company having some control and management outside India but having major control and management in India was being treated as Non-resident in India under Indian Income Tax Act.
POEM is not a new concept for tax treaties but it was introduced in domestic tax laws very recently. Place of Effective Management (POEM) impacts Foreign Companies in the times to come especially when these companies are doing active business in India while avoiding residential status and taxability in India.
(Disclaimer: This content is meant for our clients or professional friends only for stimulating discussion on the subject matter not to frame any commercial opinion. All efforts are made to compile correctly with no guarantee of extreme accuracy)
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