Govt may abolish 'place of effective management' tax

Instead, the concept of 'Controlled Foreign Corporation' is likely to be introduced

The concept of taxing a foreign company if its 'place of effective management' (POEM) is in India could be done away with in Budget 2017. Instead, the concept of 'Controlled Foreign Corporation' (CFC) is likely to be introduced. 

Provisions relating to POEM are in force currently, even as final guidelines are still awaited. Therefore, since April 1, 2016, a foreign company has the risk of a tax exposure in India if its POEM is considered to be in India. Earlier, a foreign company only had tax exposure if its affairs were 'wholly controlled and managed' in India. 

"A CFC regime with adequate checks and balances can protect the revenue's interest without jeopardising business houses whose global income can be caught within the Indian I-T net on account of ill-conceived POEM regulations. POEM could be used as a harassment tool and create huge uncertainty in India, especially as there is no jurisprudence on the subject," says Nishith Desai, founder of the law firm Nishith Desai Associates, reported The Times of India.