PoEM rules not to apply to companies with Rs 50 crore or less turnover

New Delhi, Feb 24 (IANS) The Central Board of Direct Taxes (CBDT) has clarified that place of effective management (PoEM) regulations will not be enforced upon firms with a turnover of Rs 50 crore or less in a financial year.

The clarification on the enforcement criterion of the PoEM regulations was made through a circular dated February 23, 2017.

PoEM rules are intended to target shell companies which are created for retaining income outside India although real control and management of affairs is located within the country.

Earlier income tax rules allowed tax avoidance opportunities for companies “to artificially escape the residential status provisions by shifting insignificant or isolated events related with control and management outside India.

The new rules were framed after cases of few Indian companies came into notice. These firms had set up small subsidiaries in tax havens and vest superficial control of their international operations in them to avoid paying taxes on overseas operations, and only paid taxes on Indian operations.

Under the PoEM rules amended by the Finance Act, 2015, a company’s global income will be eligible for taxation in India if its effective management and control was situated in India “at any time” during a year instead of throughout the year.

The regulations were supposed to have come into effect from the current fiscal, but were deferred till April 1, 2017, to allow companies sufficient time to prepare accounts according to their place of residency under the new norms.