What are the implications of the recently placed Place of Effective Management (PoEM) rules on revenue and business? Critically examine.
Place of Effective Management (PoEM) is a place where key management and
commercial decisions for the business of a company are made.
The implications are as under:
The PoEM puts in place a test of residence for the companies to define if a company is resident in India. While the non-resident company is generally taxed only on its Indian sourced income; a resident company is taxed for its global income. PoEM would thus allow India to tax such company on its global income also. This would bring more tax revenue and increase tax-GDP ratio.
It would serve as an anti-avoidance measure and is thought to bring the passive income of foreign subsidiaries of domestic companies and Indian subsidiaries of foreign companies under tax net.
Critics say that the rules may affect “ease of doing” business in India as the companies are subjected to burdensome compliances. Instead of raising the tax collection, the provisions may lead to increased litigations in the country and raise disputes with treaty partners in situations of double taxation.