Skip to main content

Cos Work Out Strategies to Beat PoEM Blues

At an Indian multinational (MNC) that owns a foreign subsidiary through a company registered in Singapore, this is an unsettling time. Senior executives are preparing to visit the island country to attend a board meeting that's been organised outside India for the first time.

In Bengaluru, senior executives at a prominent startup huddle together every week to discuss a potentially disruptive matter.

In both the cases, the companies are staring at a likely tax liability in the coming year on account of a new regulation -Place of Effecti ve Management or PoEM. This is a framework to determine the tax payable by a foreign company that for all purposes is managed from India and yet does not pay tax domestically.  Many Indian companies that have traditionally used holding companies and subsidiaries overseas for various reasons are assessing how they may be affected and are racing to put new structures in place before they come under scrutiny from next year.

ā€œFor instance, multinationals are now ensuring that Indian resident directors physically attend the board meetings of the overseas companies as they otherwise risk getting exposed to PoEM,ā€œ said Jatin Kanabar, a partner at Deloitte Has kins & Sells.

Some companies would be affected more because they have traditionally invested outside India for expansion, said experts. Only companies with more than `. 50 crore in annual revenue may be liable to pay tax under PoEM.

ā€œSeveral startups, pharmaceutical and information technology companies that have subsidiaries outside India with more than ` . 50 crore in revenue, but are effectively managed from India, could face scrutiny from the tax department under PoEM guidelines. Many of these companies could create substance in locations outside India and show that they are independently managed to not be required to pay domestic taxes,ā€œ said Amrish Shah, senior advisor, transaction tax, EY.

While the government has said that operational subsidiaries of Indian multinationals won't be targeted, many such units are held via passthrough companies registered in tax-friendly countries.

ā€œThe intent is not to target Indian multinationals which are engaged in business activity outside India but to target shell companies which are created to retain income outside India. PoEM regulations may be targeted more towards companies with passive income as compared to operational subsidiaries of Indian multinationals,ā€œ said Kanabar. 

28TH FEBRUARY, 2017, THE ECONOMIC TIMES,NEW-DELHI

Comments

Popular posts from this blog

Credit card spending growth declines on RBI gaze, stress build-up

  Credit card spends have further slowed down to 16.6 per cent in the current financial year (FY25), following the Reserve Bank of Indiaā€™s tightening of unsecured lending norms and rising delinquencies, and increased stress in the portfolio.Typically, during the festival season (Septemberā€“December), credit card spends peak as several credit card-issuing banks offer discounts and cashbacks on e-commerce and other platforms. This is a reversal of trend in the past three financial years stretching to FY21 due to RBIā€™s restrictions.In the previous financial year (FY24), credit card spends rose by 27.8 per cent, but were low compared to FY23 which surged by 47.5 per cent. In FY22, the spending increased 54.1 per cent, according to data compiled by Macquarie Research.ICICI Bank recorded 4.4 per cent gross credit losses in its FY24 credit card portfolio as against 3.2 per cent year-on-year. SBI Cardsā€™ credit losses in the segment stood at 7.4 per cent in FY24 and 6.2 per cent in FY23, the...

Brigade Hotel Ventures files draft papers with Sebi for Rs 900 crore IPO

  Brigade Hotel Ventures Ltd, owner and developer of hotels in South India, has filed draft papers with capital markets regulator Sebi to raise Rs 900 crore through an initial public offering (IPO).The proposed IPO is entirely a fresh issue of equity shares with no Offer-for-Sale (OFS) component, according to the draft red herring prospectus (DRHP).Proceeds from the issue to the tune of Rs 481 crore will go towards payment of debt, Rs 412 crore will be allocated to the company and Rs 69 crore to its material subsidiary, SRP Prosperita Hotel Ventures Ltd.Additionally, Rs 107.52 crore will be used to purchase an undivided share of land from the Promoter, BEL, and the remaining funds will support acquisitions, other strategic initiatives, and general corporate purposes.The company may raise up to Rs 180 crore through a Pre-IPO Placement.   If the placement is undertaken, the issue size will be reduced.Brigade Hotel Ventures Ltd is a wholly-owned subsidiary of Brigade Enterprises ...

Govt invites applications for RBI deputy governor's post, last date Nov 30

  The government has invited applications for the post of deputy governor of Reserve Bank of India from interested candidates with at least 25 years of experience and below 60 years of age as on January 15, 2025.One of the deputy governors, Michael Patraā€™s current term will end on January 15.According to an advertisement, candidates should have at least 25 years of work experience in Public Administration, including experience at the level of secretary or equivalent in the Government of India, or persons who have at least 25 years of work experience in an Indian or International Public Financial Institutions; or persons of exceptional merit and track record at the national or international level in the relevant field.The last date of submission of the application is November 30, 2024.   It has been clarified that the Financial Sector Regulatory Appointments Search Committee (FSRASC) ā€“ a body which will select the candidates- is free to identify and recommend any other person a...