The Central Board of Direct Taxes (CBDT) has sought comments from the public on some modifications and amendments it had made to the Place of Effective Management (PoEM) Rules.
“The circular has dealt in detail with the issues that a foreign firm is likely to face in its first year of constituting a resident in India owing to its PoEM being in India,” said Rakesh Nangia, managing partner, Nangia & Co.
“In addressing issues such as computation of depreciation, carry forward and set-off of losses, preparation of accounts in case the accounting year of the foreign company doesn’t end on March 31st, computation of withholding tax and the like, CBDT has ensured that the computation provisions are in place to give a meaningful implementation to the provisions of POEM.”
This proactive action ensured that unwarranted litigation on these issues was nipped in the bud, Mr. Nangia added.
“The Central Government hereby notifies the exceptions, modifications and adaptations for application of provisions of the Act on the computation of total income, treatment of unabsorbed depreciation, set off or carry forward and set off of losses, collection and recovery and special provisions relating to avoidance of tax in respect of the foreign company, said to be resident in India in any previous year on account of its PoEM being in India, and said foreign company is not previously assessed in India as such,” the official notification said. “At the same time, ensuring that the interest of the revenue is not harmed, necessary clarifications have also been provided and clearing the air on the rate of tax applicable to foreign companies qualifying as Indian resident owing to PoEM, it has been provided that the rate of tax shall be the same as it applies to any other foreign company i.e. 40%,” Mr. Nangia said.
The draft will be available for public comment on the CBDT website till June 23.
The Finance Act 2015 introduced the concept of place of effective management or PoEM.
If a company’s PoEM is in India it will be treated as an Indian resident and its global income will be taxable in India.
