The finance ministry on Wednesday proposed a two-stage process for determining the place of effective management of a company, with a view to assess its tax liability.
The finance ministry on Wednesday proposed a two-stage process for determining the place of effective management of a company, with a view to assess its tax liability.
The first stage would be identification of the persons who make the key management and commercial decision for the company and secondly the determination of the place where these decisions are made, according to draft guiding principles for determination of place of effective management (POEM) of a company .
Earlier the Income-Tax Act said that a company is resident in India “if it is an Indian company or if during that year, the control and management of its affairs is situated wholly in India.”
However this allowed tax avoidance opportunities for companies to artificially escape the residential status under these rules by shifting isolated events abroad.
