3-member collegium to decide if cos violating POEM rules

Guarding itself against any accusation of 'tax terrorism', CBDT today said taxmen will have to take prior approval of a 3-member collegium before declaring that an overseas company has effective management control in India and hence liable to pay tax under the POEM rules.

In first such step to be implemented, the concept of collegium comprising Principal Commissioners of Income Tax is aimed at providing comfort to tax payers and reducing chances of harassment.

The collegium system will also be followed under the General Anti Avoidance Rules (GAAR), which are slated to take effect from April 1, 2017.

Under the Place Of Effective Management (POEM) rules, which were notified today, Assessing Officers (AOs) will also have to seek prior approval of the Principal Commissioner before initiating any proceedings for holding a company incorporated outside India on the basis of its POEM as being resident in India.
 

"Adequate administrative safeguards have been incorporated in the guidelines by mandating that the Assessing officer (AO), before initiating inquiry for POEM in a case of a taxpayer, will seek approval from Principal Commissioner of Income Tax/Commissioner of Income-tax," an official statement said.

The rules provide that if an AO proposes to hold a company incorporated outside India as being resident in India based on POEM, then any such finding shall be given by the AO after seeking prior approval of the collegium of three members consisting of Principal Commissioners or the Commissioners.

"The collegium so constituted shall provide an opportunity of being heard to the company before issuing any direction in the matter," the POEM guiding principles said.

Nangia & Co Managing Partner Rakesh Nangia said that invoking of the POEM rules would not be very easy for taxmen as they will have to go back to the collegium every time before raising tax demand.

"However, the POEM rules have been diluted to some extent as they will not apply to companies having a turnover or gross receipts of Rs 50 crore or less in a financial year," Nangia said.