Taxation / Taxation / Place of Effective Management (POEM).
Place of Effective Management (POEM).
- Introduction and Purpose:
- The Finance Act 2015 introduced the concept of Place of Effective Management (PoEM) to determine the residential status of foreign companies in India.
- If a company's PoEM is in India, it is treated as an Indian resident, subjecting its global income to taxation in India.
- Definition of PoEM:
- PoEM refers to the place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance, made.
- Objective and Target:
- The primary objective of PoEM is to target shell companies, ensuring that companies claiming to be foreign entities but having substantial business operations in India are treated as Indian residents for tax purposes.
OECD Digital Tax Proposal:
- Introduction and Background:
- In 2019, the Organization for Economic Co-operation and Development (OECD) proposed a digital tax framework to address tax challenges arising from the digitalization of the economy.
- The focus was on large and highly profitable multinational enterprises (MNEs), particularly digital companies.
- Key Elements of the Proposal:
- The proposal suggests that MNEs, especially digital giants like Google, Facebook, and LinkedIn, should pay tax in the countries where they have a significant business presence, generate sales, and accrue profits.
- Profit and Tax Reallocation:
- The core idea is to re-allocate profits and corresponding taxing rights to the countries and jurisdictions where MNEs have substantial markets and business activities.
- Objective of the Digital Tax Proposal:
- The proposal aims to address the challenges posed by the digital economy, where companies can operate globally without a significant physical presence in many countries but still generate substantial revenue.
- Implementation and Global Cooperation:
- Implementing such a proposal requires global cooperation, as digital companies often operate across borders, and taxing rights need to be coordinated among countries.
The OECD's digital tax proposal reflects the need to adapt international tax rules to the evolving digital landscape, ensuring that companies contribute taxes in alignment with their economic activities and presence in different jurisdictions.
