The implementation of the Direct Taxes Code (DTC) Bill, 2010, is likely to get delayed. Media reports suggest that the Finance Act, 2012, (Budget 2012) may introduce some of the DTC concepts in the Income Tax Act, 1961, (the Act), itself.
Under the Act as well as DTC, global income of any person is subject to tax in India if the person is a “resident” of India.
The term ‘place of effective management’ (POEM) means the place where the board of directors or the executive directors (EDs) make their decisions, or where the board of directors routinely approves the commercial and strategic decisions made by EDs or officers, or the place where such people perform their functions.
The proposed POEM test represents too narrow a threshold, as even if for a part of a year the POEM is in India, the foreign company becomes resident of India. Further, the definition of POEM itself could lead to subjective interpretations and significant uncertainties.
| THE TAX JURISDICTION | ||
| Person | I-T Act | DTC |
| Foreign Company | If during the year, the control and management (C & M) of its affairs is wholly in India | Its place of effective management, at any time in the year, is in India |
| Firm or an AOP | If during the year the C & M of its affairs is partly situated in India | If during the year the C & M of its affairs is partly situated in India |
It is desirable that in the times of economic uncertainties such ambiguous provisions are not introduced. The concept of C & M under the Act and the concept of POEM under the tax treaties are well settled over a number of years and these need not be disturbed.
Radhakishan Rawal
Director (Tax & Regulatory Services), PwC India
(The views expressed here are personal)
