Govt sets tax rules for biz outside India

Targeting shell companies and firms created purposely for retaining incomes outside India, the government on Tuesday finalised rules for ‘Place of Effective Managament’ (POEM) that seeks to decide the residential status of a company. The rules brought out a week ahead of the Union Budget will apply from assessment year 2017-18, the finance ministry said.

It, however, said that the POEM guidelines shall not apply to companies with turnover or gross receipts of Rs 50 crore or less in a financial year. The new rules provide for Active Business Outside India (ABOI) test, so as not to cover companies outside India, which are engaged in active business.

“The intent is not to target Indian multinationals, which are engaged in business activity outside India. The intent is to target shell companies and companies, which are created for retaining income outside India although real control and management of affairs is located in India,” the ministry said in a statement.

“It is emphasised that these guidelines are not intended to cover foreign companies or to tax their global income, merely on the ground of presence of permanent establishment or business connection in India,” it said.

Union Budget 2015 had amended the provisions of residency in India to provide a new test based on POEM. It seeks to treat a foreign company which is effectively controlled from India, a resident in India. Thereby, bringing the global income of a foreign company to tax in India.

POEM is an internationally recognised test for determination of residence of a company incorporated in a foreign jurisdiction.