PoEM rules will not apply to companies with sales below Rs 50 cr

PoEM to determine tax liability of foreign cos managed from India but don't pay tax domestically

The tax department has reiterated that the Place of Effective Management (PoEM) rules that require foreign firms to pay taxes in India if the effective control is within the country will not apply to companies with a turnover of Rs 50 crore or less in a financial year.

Last month, the tax department had come out with the long-awaited PoEM rules that will require foreign companies in India and Indian firms with overseas subsidiaries to pay local taxes if their businesses were effectively controlled by Indians.

That time, the rules did not set a threshold over which the rules will apply. However, the accompanied press release did state that the rules will not apply to companies with turnover up to Rs 50 crore in a year.

That gave rise to a confusion whether the threshold will indeed by adhered to.

In a clarificatory circular, the Central Board of Direct Taxes (CBDT) said the provision "shall not apply to a company having turnover or gross receipts of Rs 50 crore or less in a financial year".

POEM rules essentially target shell companies and those which are created for retaining income outside India although real control and management of affairs are located in India.

"This circular re-emphasises that the government intends to contain avoidable litigation by placing a cap on category of companies for which POEM can be invoked," Nangia and Co Managing Partner Rakesh Nangia said.

Amit Maheshwari, Partner, Ashok Maheshwary & Associates LLP, said the clarification did away with unnecessary confusion in the minds of taxpayers.