| Question And Answer | |
|---|---|
| Subject: | Applicability of POEM of two foreign subsidiaries. (POEM) |
| Category: | Income-Tax |
| Querist: | Ravi aiftp |
| Answered by: | Chartered Accountant ., Mr . H. N. Motiwalla |
| Tags: | Applicability of POEM of two foreign subsidiaries. (POEM) |
| Date: | January 15, 2024 |
ABC P. Ltd is engaged in business of rendering IT related services. ABC Ltd has formed wholly owned subsidiaries in USA (PQR Inc) and Dubai (STU FEZ Ltd) to bill transactions to its foreign customers. Promoter and majority of directors in foreign subsidiaries resides in India. However KMP’s of the said companies are based out of India and are on the Board of those companies. Management of ABC Ltd seek your opinion in regards to applicability of POEM of two foreign subsidiaries.
Sub section (3) of section 6 of the Income tax Act, 1961 define the POEM. The section reads as under:
(3) A company is said to a resident in India in any previous year, is in India, if:-
(i) it is an Indian company; or
(ii) Its place of effective management in that year, is in India.
Explanation: For the purpose of this clause “place of effective management” means a place where key management and commercial decisions that are necessary for the conduct of business of an entity as a whole are, in substance made”.
Thus, reading the above section, it is clear that two foreign companies are not an Indian companies. Further their effective management are also outside India, as key management persons (KMP) and commercial decisions for the conducting the business of those companies as a whole are made outside India, though promoter is India.