The idea of Place of Effective Management or POEM was first introduced in the Finance Act 2015 for the purpose of determining the residential status of foreign businesses. As per the act, any business having its place of effective management in India will be considered as an Indian resident and accordingly, it’s global income will be taxable in India.17

But the Finance Act was missing the entire criteria and process for determining the place of effective management. For this purpose, the Central Board of Direct Taxes (CBDT) introduced the Guiding Principles for determination of Place of Effective Management (POEM) of a Company.

With effect from 1st April 2016, the existing provisions of section 6(3) of the Act were amended vide Finance Act, 2015 were amended.

As per the new amendments, 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 in that year is in India

What does Place of Effective Management (POEM) mean?

“Place of effective management” is defined in the Act 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.

POEM is an internationally recognized test for the determination of residence of a company incorporated in a foreign jurisdiction. Most of the tax treaties entered into by India recognizes the concept of ‘place of effective management’ for determination of residence of a company as a tiebreaker rule for the avoidance of double taxation.

General guidelines for determination of POEM

Place of Effective Management further provides clarification on the following areas –

Going forward we will be writing a series of articles on POEM with regards to the guidelines issued for businesses that are engaged in active business outside India and for those that aren’t.

For a deeper insight to how ‘Place of Effective Management’ affects your business, talk to our experts at Integra Books today.

 

The most frequent problems that business owners face are to do with accounting & regulatory compliance. Entrepreneurs view time invested in doing both as unproductive time.

34, Manikanta Sankeerana

Complex, 1st Floor Gangamma Temple St.