In a major relief to smaller companies and firms, the Central Board of Direct Taxes (CBDT) had clarified that place of effective management (PoEM) regulations will not be applicable to companies and firms that have a turnover or gross receipts of less than Rs 50 crore per annum.
The Government had recently amended the PoEMregulations with a view to determine the tax liability of any foreign company that for all purposes is managed from India but do not pay tax domestically. The PoEM is mainly used to determine whether a company, subsidiary or a firm really has a base in India and if all the decisions regarding the running of the company are taken from India. If PoEM test proves that a subsidiary of a multinational or any other company or firm is managed from India, domestic taxation laws would be applied to such an organisation.
The regulations are mainly aimed at companies which for all purposes have a base in India but as part of tax planning have holding companies registered outside India.