Adhia: POEM postponed for accounting convenience

Revenue Secretary Hasmukh Adhia on Thursday said the rules for determining Place of Effective Management (POEM) of a company have been deferred till April 2017 so as to give companies sufficient time to prepare accounts according to their place of residency under the new norms. He ruled out deferring the General Anti-Avoidance rules (GAAR) further beyond April 1, 2017.

POEM rules for determining the Place of Effective Management of a company, with a view to assess its tax liability, was to come into effect in the current financial year. However, the final guideline is yet to be put in place by the CBDT (Central Board of Direct Taxes).

"Since this Finance Bill will get passed by middle of May, we should not ideally introduce POEM on the date which is not beginning of the year. So, that is why we are postponing POEM," Adhia said at an event organised by IVCA, an organisation that works towards promotion of private equity and venture capital.

Adhia said stakeholders have raised concerns that if POEM is implemented in the later part of any financial year, then certain taxpayers would be found to have flouted rules of paying advance tax and TDS (Tax Deducted at Source) since the beginning of year.

"This was a fair point. So, we have to make legislative changes this year in the Finance Bill which says that if a company is considered resident under POEM guideline, it will not have obligation of TDS and advance tax for that year. So, this is the change we have brought out in the Finance Bill," Adhia said.

Finance Minister Arun Jaitley in his 2016-17 Budget announced that both POEM and GAAR will be implemented from April 2017.

"GAAR is definitely coming in from April 1, 2017. When we said in the Budget we are postponing implementation of POEM by one year, we did not want you to get an impression that this government is also going to postpone GAAR," Adhia said.

Last year, the finance minister had deferred applicability of GAAR by two years.

The Government had earlier proposed imposing the GAAR from April 1, 2015, for those claiming tax benefit of over Rs 3 crore. The rules are aimed at minimising tax avoidance for investments made by entities based in tax havens.

"Now POEM and GAAR are both set to come, our rules are already laid, if any guidance is required for offshore funds we will provide," Adhia added.

At a PHDCCI event later, Adhia said the Minimum Alternate Tax (MAT) rates' cannot be brought down at this juncture as the government has already kept a space for corporates to enjoy sufficient tax exemptions in other forms.