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Co. Residential Status: Conditions When Poem in India Is Not Applicable To A Company

The document discusses guidelines on determining a company's place of effective management (POEM) for tax purposes. It outlines several key points: 1) A company can be considered to have an active business outside of India if passive income is less than 50% of total income, and certain additional criteria on assets, employees, and payroll expenses are met. 2) For companies with an active business outside of India, the POEM is presumed to be outside of India if the majority of board meetings are held there. 3) For other companies, determining the POEM is a two-stage process of identifying who makes key management decisions, and where those decisions are made. 4) Specific conditions and

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Rahul Pambhar
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36 views2 pages

Co. Residential Status: Conditions When Poem in India Is Not Applicable To A Company

The document discusses guidelines on determining a company's place of effective management (POEM) for tax purposes. It outlines several key points: 1) A company can be considered to have an active business outside of India if passive income is less than 50% of total income, and certain additional criteria on assets, employees, and payroll expenses are met. 2) For companies with an active business outside of India, the POEM is presumed to be outside of India if the majority of board meetings are held there. 3) For other companies, determining the POEM is a two-stage process of identifying who makes key management decisions, and where those decisions are made. 4) Specific conditions and

Uploaded by

Rahul Pambhar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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 Co.

Residential status
Place of effective management (POEM) means a place where key management and commercial
decisions that are necessary for the conduct of the business of an entity as a whole are, in
substance made.

The final guidelines on POEM contain some unique features. One of the unique features is test of
Active Business Outside India (ABOI). The guidelines prescribe that a company shall be said to
engaged in 'active business outside India' if passive income is not more than 50% of its total
income. Further, there are certain additional cumulative conditions to be satisfied regarding
location of total assets, employees and payroll expenses.

The place of effective management in case of a company engaged in active business outside
India shall be presumed to be outside India if the majority meetings of the board of directors of
the company are held outside India.

In cases of companies other than those that are engaged in active business outside India, the
determination of POEM would be a two stage process, namely:—

First stage would be identification or ascertaining the person or persons who actually make the
key management and commercial decision for conduct of the company's business as a whole.

Second stage would be determination of place where these decisions are in fact being made.

The POEM ( Place of Effective Management ) was defined to mean a place where key
management and commercial decisions that are necessary for the conduct of the business of an
entity as a whole are in substance made. In order to bring clarity about the applicability criteria
of certain Income tax provisions.
The POEM in case of a Company engaged in active business outside India shall be presumed to
be outside India if the majority meetings of the board of directors of the company are held
outside India.

CONDITIONS WHEN POEM IN INDIA IS NOT APPLICABLE TO A COMPANY:

o Company is engaged in active business outside India  and


o Majority of Board Meeting are held Outside India.

Active Business Outside India:

A Company is said to be active business outside India if its passive income is not more than 50%
of the total income of such Company and

♦ Assets in India are < 50% of the total assets

(Assets will be taken as average of opening and closing)


♦ Employees in India < 50% of the total employees

(No. of employees will be taken as average of opening and closing)

♦ Payroll Expenses in India < 50% of the total payroll expenses.

Passive Income means Income in relation to transactions of purchase and sale with Associated


Enterprises (AEs) or Income generated from Royalty, Dividend, Interest, Rental or Capital
Gains.

MANAGEMENT POWER EXERCISED IN INDIA:-

If on the basis of facts and circumstances it s established that the Board of directors of the
company are standing aside and not exercising the powers of management and such powers are
being exercised by either the holding company or an other persons resident in India, then the
place of effective management shall be considered to be in India.

PRIOR APPROVAL OF PRINCIPAL CIT/CIT REQUIRED:-


In case the Assessing Officer proposes to hold a foreign company, on the basis of its POEM, as
being resident in India then any such finding shall be given by the Assessing Officer after
seeking prior approval of the collegium of their members consisting of the Principal CITS or
CITS, as the case may be, to be constituted by the Principal Chief Commissioner of the region
concerned.

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