Place of Effective Management rules target shell companies, firms with Rs 50 cr sales excluded

The PoEM rules with an aim to assess the tax liability was to come into effect in the current fiscal.

Government said it aims to target the shell companies that are created to evade taxes through the place of effective management (POEM) rules, but excluded firms with an annual turnover of less than Rs 50 crore from its purview. The Central Board of Direct Taxes (CBDT) today made public the long-pending “guiding principles” to determine place of effective management of a company, which have been effective April 1, 2016.

The PoEM rules with an aim to assess the tax liability was to come into effect in the current fiscal. The final guidelines have now been issued.

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“The final guidelines on POEM contain some unique features. Active Business Outside India (ABOI) test has been provided so as not to cover companies outside India which are engaged in active business,” CBDT said in a statement.

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“The intent is not to target Indian multinationals which are engaged in business activity outside India. The intent is to target shell companies and companies which are created for retaining income outside India although real control and management of affairs is located in India.”

The tax department also said “the guidelines are not intended to cover foreign companies or to tax their global income, merely on the ground of presence of permanent establishment or business connection in India”.

Also, the POEM guidelines will not apply to companies having a turnover or gross receipts of Rs 50 crore or less in a financial year.

“Adequate administrative safeguards have been incorporated in the guidelines by mandating that the assessing officer (AO), before initiating inquiry for POEM in a case of a taxpayer, will seek approval from Principal Commissioner or Commissioner of Income-Tax. The AO shall also obtain approval from Collegium of Principal Commissioners of Income-Tax before holding that POEM of a non-resident company is in India,” it said.

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